TABLE OF CONTENTS
BUSINESS OVERVIEW ................................................................................................................................................................................ 2
CONSOLIDATED FINANCIAL RESULTS ........................................................................................................................................................ 2
2021 REVIEW ............................................................................................................................................................................................. 3
RESULTS OF OPERATIONS AND TRENDS IMPACTING THE BUSINESS ........................................................................................................ 4
EXPENSES .................................................................................................................................................................................................. 7
LIQUIDITY, CAPITAL RESOURCES AND CAPITAL STRUCTURE ..................................................................................................................... 9
CAPITAL EXPENDITURES AND EQUITY INVESTMENTS ............................................................................................................................. 13
OFF-BALANCE SHEET ARRANGEMENTS ................................................................................................................................................... 13
OUTSTANDING SHARE DATA ................................................................................................................................................................... 13
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK ................................................................................................ 14
CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES ......................................................................................................................... 15
ACCOUNTING POLICIES ........................................................................................................................................................................... 16
DISCLOSURE CONTROLS & PROCEDURES ................................................................................................................................................ 17
SPECIFIED FINANCIAL MEASURES ........................................................................................................................................................... 17
RISK FACTORS .......................................................................................................................................................................................... 22
FORWARD-LOOKING INFORMATION AND ADVISORY STATEMENT ........................................................................................................ 34
TERMS AND ABBREVIATIONS .................................................................................................................................................................. 37
Basis of Presentation
The following MD&A was prepared and approved by the Board of Gibson Energy Inc. (“we”, “our”, “us”, “Gibson”, “Gibson Energy” or
the “Company”) as of February 22, 2022 and should be read in conjunction with the audited consolidated financial statements and
related notes of the Company for the years ended December 31, 2021 and 2020, which were prepared under International Financial
Reporting Standards as issued by the International Accounting Standards Board, also referred to as GAAP. Amounts are stated in
thousands of Canadian dollars except volumes and per share data, unless otherwise noted. Additional information about Gibson,
including our AIF for the year ended December 31, 2021 is available on our SEDAR profile at www.sedar.com and on our website at
www.gibsonenergy.com. This MD&A contains forward-looking statements and specified financial measures and readers are cautioned
that this MD&A should be read in conjunction with the Company’s disclosures under “Forward-Looking Information and Advisory
Statement” and “Specified Financial Measures”. For a list of common terms or abbreviations used in this MD&A, refer to “Terms and
abbreviations”.
Specified Financial Measures
The Company has identified certain specified financial measures that management believes provide meaningful information in
assessing the Company’s underlying performance. Readers are cautioned that these measures do not have a standardized meaning
prescribed by GAAP and therefore may not be comparable to similar measures presented by other entities. Refer to the ”Specified
Financial Measures” section of this MD&A for a list and description, including reconciliations to the most directly comparable GAAP
measures, of such measures.
2
BUSINESS OVERVIEW
Gibson is a Canadian-based liquids infrastructure company with its principal businesses consisting of the storage, optimization,
processing, and gathering of liquids 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.
CONSOLIDATED FINANCIAL RESULTS
($ thousands, except where noted)
Three months ended December 31,
2021
2020
Change
Years ended December 31,
2021
2020
Change
Revenue
Segment Profit (3)
Adjusted EBITDA (1,2)
Net income
2,119,027
1,320,689
798,338
7,211,148
4,938,066
2,273,082
120,667
84,345
36,322
475,196
469,047
6,149
103,762
81,888
21,874
445,218
444,915
303
43,917
12,442
31,475
145,053
121,309
23,744
Cash flow from operating activities
3,186
44,940
(41,754)
216,806
459,551
(242,745)
Distributable cash flow (1)
64,396
54,096
10,300
291,073
298,888
(7,815)
Growth capital including equity investments (4)
38,489
60,807
(22,318)
153,797
308,944
(155,147)
Dividends declared
51,319
49,494
1,825
205,154
198,667
6,487
Trailing twelve months – As at December 31,
Change
2020
2021
Ratios
Net debt to adjusted EBITDA ratio (5)
Debt to capitalization ratio
Interest coverage ratio
Dividend payout ratio (5)
Revenue
Net income
Basic income per share ($/share)
Diluted income per share ($/share)
Dividends ($/share)
Total assets
Total non-current liabilities
3.2
50%
10.9
70%
2.8
46%
8.6
66%
0.4
4%
2.3
4%
Years ended December 31,
2021
2020
2019
7,211,148
145,053
4,938,066
121,309
7,336,322
176,339
0.99
0.97
1.40
0.83
0.82
1.36
1.21
1.19
1.32
As at December 31,
2021
3,431,760
1,991,126
2020
3,067,160
1,856,236
2019
2,976,690
1,626,916
(1) Adjusted EBITDA and distributable cash flow are non-GAAP financial measures. See the “Specified Financial Measures” section of this MD&A for information
on each non-GAAP financial measure.
(2) Effective Q1 2021, the Company has updated the manner in which it determines adjusted EBITDA and prior period comparative figures have been restated
to conform to this new presentation. See “Specified Financial Measures” section of this MD&A for the definition and reconciliations of adjusted EBITDA
(3) Total segment profit is a total of segments measure. See the “Specified Financial Measures” section of this MD&A for more information.
(4) Growth capital including equity investments is a supplementary financial measure. See the “Specified Financial Measures” section of this MD&A for more
information.
(5) Net debt to adjusted EBITDA ratio and dividend payout ratio are non-GAAP financial ratios. See the “Specified Financial Measures” section of this MD&A for
more information on each non-GAAP financial ratio.
3
2021 REVIEW
o Revenue of $7,211.1 million increased by $2,273.1 million for the year ended December 31, 2021 compared to $4,938.1
million for the year ended December 31, 2020, primarily due to higher commodity prices and volumes increasing the
contribution from the Marketing segment.
o
Segment profit of $475.2 million increased by $6.1 million for the year ended December 31, 2021 compared to $469.0 million
for the year ended December 31, 2020. The change was due to an increase in Infrastructure segment profit of $59.5 million,
primarily driven by the contribution from additional tankage at Hardisty that was placed into service in the fourth quarter of
2020, contribution from the DRU commencing operations during the third quarter of 2021 and the receipt of a one-time
payment for the present value of the remaining term of a rail loading contract during the current year. This was largely offset
by a decrease in Marketing segment profit of $53.4 million, primarily due to significant opportunities created by volatility in
crude oil differentials in the first half of 2020.
o Adjusted EBITDA of $445.2 million increased by $0.3 million for the year ended December 31, 2021 compared to $444.9
million for the year ended December 31, 2020. The factors identified above impacted adjusted EBITDA, as well as slightly
lower general and administrative expenses in the prior year as a result of certain credits recognized.
o Net income of $145.1 million increased by $23.7 million for the year ended December 31, 2021 compared to $121.3 million
for the year ended December 31, 2020, primarily due to higher debt extinguishment costs incurred in the prior year.
o Cash flow from operating activities of $216.8 million decreased by $242.7 million for the year ended December 31, 2021
compared to $459.6 million for the year ended December 31, 2020, primarily due to changes in working capital items, as well
as the factors described above.
o Distributable cash flow of $291.1 million decreased by $7.8 million, for the year ended December 31, 2021 compared to
$298.9 million for the year ended December 31, 2020, a result of the factors described above impacting adjusted EBIDTA, as
well as higher income tax expense and lower lease payments in 2021. This resulted in a dividend payout ratio of 70% for the
year ended December 31, 2021.
o Growth capital expenditures including equity investments was $153.8 million for the year ended December 31, 2021,
primarily directed towards completing the construction of the DRU and various infrastructure projects at the Edmonton
Terminal.
o Net debt to adjusted EBITDA ratio of 3.2x as at December 31, 2021, an increase of 0.4x, compared to 2.8x as at December
31, 2020, primarily due to increase in net debt. Long-term debt as at December 31, 2021 was $1,660.6 million (December 31,
2020 - $1,449.5 million).
o The Company declared annual dividends of $1.40 per common share for the year ended December 31, 2021 compared to
$1.36 per common share for the year ended December 31, 2020. Total dividends declared for the year ended December 31,
2021 were $205.2 million, compared to $198.7 million for the year ended December 31, 2020.
o On March 31, 2021, the Company entered into a long-term agreement with Suncor Energy Inc. for services at the Edmonton
Terminal and the related sanction of a biofuels blending project on a fixed-fee basis and a 25-year term to facilitate the
storage, blending and transportation of renewable diesel.
o On August 3, 2021, the Company announced the sanction of new tankage at its Edmonton Terminal, with an investment
grade counterparty.
o On August 26, 2021, the Company announced the renewal of the Company’s normal course issuer bid for an additional one-
year period, until August 31, 2022, allowing the repurchase and cancellation of up to 10% or 11,715,229 of the issued and
outstanding common shares.
o On September 13, 2021, the Company announced the addition of Ms. Juliana Lam to the Company’s Board.
o On October 14, 2021, the Company announced its 2050 net zero carbon commitment, and announced an “AAA” rating from
MSCI ESG Ratings, being the only company in MSCI ESG Ratings’ Oil & Gas Refining, Marketing, Transportation and Storage
sector in North America to receive this leadership rating.
o On December 6, 2021, the Company announced its 2022 growth capital expenditure target of approximately $150 million
with an additional allocation of between $25 million and $30 million in replacement capital expenditures.
o During the third quarter, the DRU commenced operations and on December 14, 2021 the Company announced the DRU was
fully in-service operating at or above its nameplate capacity of 50,000 barrels per day.
4
SUBSEQUENT EVENTS
o On January 11, 2022, the Company announced the addition of Ms. Heidi Dutton to the Company’s Board.
o On February 22, 2022, the Board declared a quarterly dividend of $0.37 per common share, an increase of $0.02 per common
share, for the first quarter on its outstanding common shares. The common share dividend is payable on April 14, 2022 to
shareholders of record at the close of business on March 31, 2022.
RESULTS OF OPERATIONS AND TRENDS IMPACTING THE BUSINESS
Gibson regularly evaluates its long-range strategic plan in order to assess the implications of emerging macroeconomic, societal,
political and industry trends, and how these trends have the potential to affect Gibson’s business and prospects over the short-term
and the medium to long-term. Management has identified the primary risk factors that could have a material impact on the financial
results and operations of the Company. Such risk factors are described in the "Risk Factors" section of this MD&A and are also included
in the AIF. The Company's financial and operational performance is potentially affected by a number of factors, including, but not
limited to, the factors described within the "Forward-Looking Information and Advisory Statement" section of this MD&A. This MD&A
contains forward-looking statements based on Company's current expectations, estimates, projections and assumptions. This
information is provided to assist readers in understanding the Company's future plans and expectations and may not be appropriate
for other purposes.
The Company’s senior management evaluates segment performance based on a variety of measures depending on the segment being
evaluated, including segment profit, segment revenue and volumes. The Company defines segment profit as revenue less cost of sales
(excluding depreciation, amortization and impairment charges) and operating expenses. Segment profit also includes the Company’s
share of equity pick up from equity accounted investees. Segment revenue presented in the tables below include inter-segment
revenue, as this is considered more indicative of the level of each segment’s activity. Profit by segment excludes depreciation,
amortization, accretion, impairment charges, stock-based compensation, and corporate expenses such as income taxes, interest and
general and administrative expenses, as senior management looks at each period’s earnings before corporate expenses and non-cash
items, as one of the Company’s important measures of segment performance. 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, tanks, pipelines and
connections, and plant and equipment) 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. Adjusted EBITDA is a non-GAAP measure that, as described in “Specified Financial Measures”, adjusts
for certain non-cash items that are not reflective of ongoing operations while still being included in the segment profit.
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.
The following is a discussion of the Company’s segmented results of operations for the three months and years ended December 31,
2021 and 2020:
INFRASTRUCTURE
The Infrastructure segment is comprised of a network of liquids infrastructure assets that include crude oil terminals, rail loading and
unloading facilities, gathering pipelines, a crude oil processing facility and other small terminals. The primary facilities within this
segment include the Hardisty and Edmonton Terminals, which are the principal hubs for aggregating and exporting crude oil and
refined products out of the WCSB; the DRU which is located adjacent to the Hardisty Terminal; gathering pipelines which are
connected to the Hardisty Terminal; an infrastructure position located in the U.S.; and the Moose Jaw Facility, which is impacted by
maintenance turnarounds occurring within the spring every few years.
The Company is responding to the energy transition and evaluating strategic opportunities including advancing select projects and
investing in new technologies. Desire for low carbon alternatives by customers, increasing competition and changes in demand could
have an impact on the nature of services offered as the Company executes on those plans. Also, the infrastructure segment primarily
derives revenue from stable long-term take-or-pay agreements with investment grade counterparties, such trends could also impact
Company’s ability to renew or renegotiate these contracts and may impact operational and financial results of the Infrastructure
segment.
The following table sets forth the operating results from the Company’s Infrastructure segment for the three months and years ended
December 31, 2021 and 2020:
5
($ thousands, except volumes)
Three months ended December 31,
Change
2020
2021
Years ended December 31,
Change
2020
2021
Volumes (in thousands of bbls)
129,318
108,833
20,485
467,295
408,427
58,868
Revenue
Operating expenses & other (1)
Segment profit
126,781
21,474
105,307
116,214
22,975
93,239
10,567
(1,501)
12,068
519,762
85,833
433,929
465,320
90,896
374,424
54,442
(5,063)
59,505
Adjusted EBITDA (2,3)
105,921
93,742
12,179
436,480
373,755
62,725
Includes the Company’s share of equity pick up from equity accounted investees.
(1)
(2) Adjusted EBITDA is a non-GAAP financial measure. See the “Specified Financial Measures” section of this MD&A for information on each non-GAAP
financial measure.
(3) Effective Q1 2021, the Company updated the manner in which it determines adjusted EBITDA and prior period comparative figures have been represented to
conform to this new presentation. See “Specified Financial Measures” section of this MD&A for the definition and reconciliations of adjusted EBITDA.
Operational performance
In the three months and year ended December 31, 2021, compared to the three months and year ended December 31, 2020:
Infrastructure volumes increased by 20.5 million barrels or 19%, and 58.9 million barrels or 14%, largely attributable to the addition
of 1.5 million barrels of additional tankage at Hardisty that was placed into service in the fourth quarter of 2020 as well as additional
throughput by certain customers at Hardisty.
Financial performance
In the three months and year ended December 31, 2021 compared to three months and year ended December 31, 2020:
Revenue increased by $10.6 million or 9% and $54.4 million or 12%, primarily driven by the contribution of additional tankage at
Hardisty that was placed into service in the fourth quarter of 2020 and a $19.9 million payment for the present value of the remaining
term of a rail loading contract in the second quarter of 2021, partly offset by reduced revenue for the remainder of the year as a result
of the early payout of the rail loading contract.
Operating expenses and other decreased by $1.5 million and $5.1 million primarily driven by increased equity pickup from the
Company’s equity investments, and the reversal of an accrual in the first quarter of 2021 pertaining to a regulatory matter.
Primarily as a result of the factors discussed above, adjusted EBITDA and segment profit increased by $12.2 million and $12.1 million
in the three month period and $62.7 million and $59.5 million for the annual period.
MARKETING
The Marketing segment involves the purchasing, selling, storing and optimizing of hydrocarbon products as part of supplying the
Moose Jaw Facility and marketing its refined products as well as helping to drive volumes through the Company’s key infrastructure
assets. The Marketing segment also engages in optimization opportunities which are typically location, quality and time-based. The
hydrocarbon products include crude oil, natural gas liquids, road asphalt, roofing flux, frac oils, light and heavy straight run distillates
and an oil-based mud product. The Marketing segment sources the majority of its hydrocarbon products from Western Canada as
well as the Permian basin and markets those products throughout Canada and the U.S.
The Marketing 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 and/or hydrocarbon
qualities. 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 commodity prices and can impact segment profits
in the form of realized or unrealized gains and losses, often offset by physical inventories, that can change significantly period over
period. The Company manages its risk exposure by balancing purchases and sales when practicable to lock-in margins; however, at
certain times the Company may have unbalanced purchases and sales. For more information about the risks associated with our use
of financial instruments please refer to “Quantitative and Qualitative Disclosures about Market Risks” and "Risk Factors" within this
document and the AIF.
Canadian road asphalt activity, related to refined products, is affected by the impact of weather conditions on road construction. Road
6
asphalt demand typically 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 primarily
on well drilling activities, normally the busiest in the winter in the Canadian market. Demand for NGLs is also highest in the colder
months of the year.
($, except where noted)
WTI average price ($USD/bbl)
WCS average differential ($USD/bbl)
Average foreign exchange rates ($CAD/$USD)
Three months ended December 31,
2021
77.19
14.64
1.26
2020
42.66
9.30
1.30
Change
34.53
5.34
(0.04)
Years ended December 31,
2021
67.92
13.05
1.26
2020
39.40
12.60
1.34
Change
28.52
0.45
(0.08)
The following table sets forth operating results from the Company’s Marketing segment for the three months and year ended
December 31, 2021 and 2020:
($ thousands, except volumes)
Three months ended December 31,
2021
2020
Change
Years ended December 31,
2021
2020
Change
Volumes (in thousands of bbls)
52,797
40,892
11,905
210,475
159,748
50,727
Revenue
Cost of sales and other expenses
Segment profit (loss)
2,087,825
2,072,465
15,360
1,262,729
1,271,623
(8,894)
825,096
800,842
24,254
6,963,581
6,922,314
41,267
4,665,425
4,570,802
94,623
2,298,156
2,351,512
(53,356)
Adjusted EBITDA (1,2)
5,677
(4,020)
9,697
43,219
104,241
(61,022)
1) Adjusted EBITDA is a non-GAAP financial measure. See the “Specified Financial Measures” section of this MD&A for information on each non-GAAP financial
2)
measure.
Effective Q1 2021, the Company has updated the manner in which it determines adjusted EBITDA and prior period comparative figures have been represented
to conform to this new presentation. See “Specified Financial Measures” section of the MD&A for this definition and reconciliations of adjusted EBITDA.
Operational performance
In the three months and year ended December 31, 2021, compared to the three months and year ended December 31, 2020:
Marketing volumes increased by 11.9 million barrels or 29% and 50.7 million barrels or 32%, due to higher activity from the Canadian
Crude Marketing business as part of engaging in certain location, time, and quality-based opportunities and higher refined product
volumes due to both market optimization strategies employed by the Company as well as higher demand for certain products in the
current periods.
Financial performance
In the three months and year ended December 31, 2021, compared to the three months and year ended December 31, 2020:
Revenue increased by $825.1 million or 65% and $2,298.2 million or 49%, and cost of sales and other expenses increased by $800.8
million or 63% and $2,351.5 million or 51%. The increases were largely due to higher average prices for crude oil, refined and other
products, coupled with higher volumes during the current periods as noted above.
Adjusted EBITDA increased by $9.7 million or 241% and decreased by $61.0 million or 59%. The increase in the three month period
was primarily driven by improved location, time and quality based opportunities for Crude Marketing in the current period. The
decrease for the annual period was primarily due to the prior period benefitting from significant opportunities created by volatility in
crude oil differentials in the first half of 2020 for the Crude Marketing business.
Segment profit increased by $24.3 million or 273% and decreased by $53.4 million or 56%, due to the same factors as adjusted EBITDA,
as well as the effect of unrealized gains and losses on financial instruments in the respective periods.
7
EXPENSES
($ thousands)
General and administrative
Depreciation and impairment
Right-of-use depreciation
Amortization and impairment
Stock-based compensation
Foreign exchange loss/(gain)
Debt extinguishment costs
Net interest expense
Income tax expense / (recovery)
Three months ended December 31,
2021
7,836
32,264
6,531
2,460
5,235
566
-
14,961
6,897
2020
7,834
33,477
9,257
1,832
5,726
1,034
2,001
13,691
(2,951)
Change
2
(1,213)
(2,726)
628
(491)
(468)
(2,001)
1,270
9,848
Years ended December 31,
2021
34,481
136,068
29,123
8,670
23,335
938
-
61,344
36,184
2020
33,081
124,057
37,962
7,403
21,144
(1,698)
31,833
64,587
29,369
Change
1,400
12,011
(8,839)
1,267
2,191
2,636
(31,833)
(3,243)
6,815
In the three months and year ended December 31, 2021, compared to the three months and year ended December 31, 2020:
General and administrative, excluding depreciation and amortization
General and administrative expenses stayed consistent for the three month period and increased by $1.4 million for the year ended.
The year over year increase was primarily due to credits recorded in the comparative periods associated with a transition service
agreement relating to the Canadian Truck Transportation business sale.
Depreciation and impairment
Depreciation and impairment expense decreased by $1.2 million for the three month period primarily due a revision in
decommissioning estimates for select assets during the year. Depreciation and impairment expense increased $12.0 million for the
year ended period primarily due to an impairment charge of $11.5 million recorded in the second quarter of 2021 in relation to certain
non-performing assets as well as the impact of 1.5 million barrels of additional tankage placed in service in the fourth quarter of 2020.
Right-of-use asset depreciation
Right-of-use asset depreciation decreased by $2.7 million and $8.8 million, primarily due to reductions in the value of rail car leases,
due to leases expiring or being renewed at reduced rates.
Amortization and impairment
Amortization and impairment expense was relatively consistent for the three month period and increased by $1.3 million for the year
ended period. The year over year increase was primarily due to additional technology assets being placed in service during the year.
Stock-based compensation
Stock-based compensation expense was relatively consistent for the three month period and increased by $2.2 million for the year
ended period. The year over year increase was primarily due to higher PSUs issued as a result of an increase in the PSU performance
factor and the increase of the Company’s share price in the first quarter of the year.
Foreign exchange loss/(gain) not affecting segment profit
For the three months and year ended periods foreign exchange loss/(gain) not affecting segment profit decreased due to the net
movements of the exchange rates during the respective periods.
Debt extinguishment costs
There were no debt extinguishment costs incurred in the current year. For the prior periods, the debt extinguishment costs related to
the early redemption premium paid on the retirement of senior unsecured notes.
Net interest expense
Net interest expense increased by $1.2 million for the three month period, primarily due to reduced capitalization of interest based
on the stage of construction of the Company’s projects and increased draws on the Company’s Revolving Credit Facility. For the year
ended period, the net interest expense decreased by $3.2 million, primarily due to lower interest rates on long-term debt as a result
of refinancing efforts undertaken by the Company in prior periods.
8
Income tax expense / (recovery)
For the three month period, income taxes increased with deferred income tax expense of $3.0 million and current income tax expense
of $3.9 million, compared to a deferred tax expense of $2.4 million and current tax recovery of $5.3 million. For the year ended period,
income taxes increased with deferred income tax expense of $11.1 million and current income tax expense of $25.0 million, compared
to a deferred tax expense of $9.0 million and current tax expense of $20.3 million. The increase in income taxes for both the three
month period and the year ended period was primarily due to an increase in taxable income.
The effective tax rate was 13.6% and 20.0% during the three months and year ended periods, compared to negative 31.1% and 19.5%.
The change in the three month ended period was primarily due to recoveries booked in 2020 for a tax rate adjustment related to the
Alberta Job Creation Tax Cut.
SUMMARY OF QUARTERLY RESULTS
The following table sets forth a summary of the Company’s quarterly results for each of the last eight quarters:
($ thousands, except per share
amounts)
Q4
Q3
2021
Q2
2020
Q1
Q4
Q3
Q2
Q1
Revenue
Net income
Adjusted EBITDA (1,2)
Earnings per share
Basic ($/share)
Diluted ($/share)
2,119,027 1,807,633 1,674,756 1,609,732 1,320,689 1,364,213
17,550
100,825
32,777
103,062
43,917
103,762
35,996
110,716
32,363
127,678
12,442
81,888
794,474 1,458,690
50,003
117,686
41,314
144,516
0.30
0.29
0.25
0.24
0.22
0.22
0.22
0.22
0.09
0.08
0.12
0.11
0.28
0.28
0.34
0.34
1) Adjusted EBITDA is a non-GAAP financial measure. See the “Specified Financial Measures” section of this MD&A for information on each non-GAAP financial
measure.
2) Effective Q1 2021, the Company has updated the manner in which it determines adjusted EBITDA and prior period comparative figures have been restated
to conform to this new presentation. See “Specified Financial Measures” section of this MD&A for the definition and reconciliations of adjusted EBITDA.
For more details on the specific factors driving the periodic movements, refer to the “Results of Operations and Trends Impacting the
Business” section of this MD&A. The following identifies the key drivers in segment profitability over the last eight quarters:
Infrastructure – The Infrastructure segment has progressively commissioned new storage capacity and related infrastructure, typically
underpinned by long-term, take-or-pay contracts. Select significant drivers over the past eight quarters include:
o The DRU commenced operations in the third quarter of 2021
o The Company received a payment for the present value of the remaining term of a rail loading contract in the second quarter
of 2021
o 1.5 million barrels of additional tankage that was placed into service at Hardisty in the fourth quarter of 2020
o The Gibson’s terminal, located at Wink, Texas, U.S., that was placed into service in the third quarter of 2020
Marketing – The Marketing segment’s activities, including its location, quality and time-based strategies as well as the sale of refined
products, are highly impacted by various factors that often fluctuate quarter over quarter. While certain of these variables, including
exposure to the underlying commodity prices, are actively managed, the specific profit drivers for the Marketing segment generally
vary from period to period. Crude Marketing was able to find certain opportunities in the volatile market environment immediately
following the onset of COVID-19. More recently, the opportunities and margins available to both Crude Marketing and Moose Jaw
Refined Products have been more limited.
9
LIQUIDITY, CAPITAL RESOURCES AND CAPITAL STRUCTURE
Liquidity Sources
($ thousands)
Revolving Credit Facility
Senior unsecured notes
Senior unsecured notes
Senior unsecured notes
Unsecured hybrid notes (1)
Unamortized issue discount and debt issue costs
Total debt outstanding
Lease liability (includes current and long-term portion)
Cash and cash equivalents
Coupon
Rate
floating
2.45%
2.85%
3.60%
5.25%
Total share capital
Total capital
Maturity
December 31,
2021
December 31,
2020
2026
2025
2027
2029
2080
270,000
325,000
325,000
500,000
250,000
(9,391)
1,660,609
81,779
(62,688)
1,679,700
1,997,255
60,000
325,000
325,000
500,000
250,000
(10,519)
1,449,481
102,742
(53,676)
1,498,547
1,977,104
3,676,955
3,475,651
(1) The unsecured hybrid notes are included in the above total capital calculation in accordance with the Company’s view of its capital structure which includes
shareholders’ equity and long-term debt, and lease liabilities. The unsecured hybrid notes and associated interest payments are excluded from the definition
of consolidated debt for the purposes of debt to capitalization as well as the consolidated interest coverage covenant ratios.
The Company’s primary liquidity and capital resource needs are to fund ongoing capital expenditures on growth opportunities, its
working capital needs and its dividend. In addition, the Company must service its debt, including interest payments. The Company
expects to source funds required to service its debt from cash and cash equivalents, cash flow from operations, its Revolving Credit
Facility and by accessing capital markets. The Company currently anticipates its cash flow from operations, the majority of which is
derived from long-term take-or-pay contracts, to be sufficient to meet its operating obligations, fund capital expenditures and pay its
dividend. As a result of taking a disciplined and proactive approach, the Company has successfully extended the maturity of its debt
portfolio and reduced the weighted average borrowing cost. The nature of the uncertainties created by the COVID-19 pandemic
improved throughout 2021 with the continued success of regional vaccination programs, however, the Company’s ability to access
financing in the capital markets could still be adversely impacted. Refer to "Risk Factors” in this document and the AIF for more
information. The Company continues to monitor the situation and remains satisfied that its disciplined approach employed with
respect to its capital structure is appropriate given the characteristics and operations of the underlying asset base.
The Company may adjust its capital structure as a result of changes in current or expected economic and/or market conditions or its
underlying business. Adjustments to the capital structure may result in refinancing or renegotiating its existing debt, issuance of new
debt, issuance of equity or hybrid securities and the repurchase of shares. As at December 31, 2021 the Company has a normal course
issuer bid on the TSX, which expires August 31, 2022, under which the Company repurchased no shares during the year.
Revolving Credit Facility
The Revolving Credit Facility is available to provide financing for working capital, fund capital expenditures and other general corporate
purposes. In the second quarter of 2021, the Company extended the maturity date of the Revolving Credit Facility from February 2025
to April 2026 and, among other amendments, adjusted its pricing mechanism to include sustainability linked terms.
The Revolving Credit Facility permits 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 credit rating and relative performance to selected ESG
targets. The Company must pay standby fees 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.
10
As at December 31, 2021, the Company had a cash balance of $62.7 million and had the ability to utilize borrowings under the
Revolving Credit Facility of $480.0 million. In addition, the Company has two bilateral demand facilities, which are available for use
for general corporate purposes or letters of credit, totaling $150.0 million under which it had issued letters of credit totaling $35.0
million (December 31, 2020 - $34.7 million).
Senior unsecured notes
The senior unsecured notes carrying a fixed 2.45% per annum coupon rate have semi-annual interest payment dates of January and
July 14 and a maturity date of July 14, 2025.
The senior unsecured notes carrying a fixed 2.85% per annum coupon rate have semi-annual interest payment dates of January and
July 14 and a maturity date of July 14, 2027.
The senior unsecured notes carrying a fixed 3.60% per annum coupon rate have semi-annual interest payment dates of March and
September 17 and a maturity date of September 17, 2029.
The indenture(s) governing the terms of the Company’s senior unsecured notes, as supplemented, contains certain redemption
options whereby the Company can redeem all or part of the senior unsecured notes at such prices and on such dates as set forth
therein. In addition, the holders of the notes have the right to require the Company to repurchase the notes at the purchase prices
set forth in the applicable indenture in the event of a change of control triggering event, being both a change in control of the Company
or a ratings decline of the applicable notes to below an investment grade rating, as such terms are defined in the applicable indenture.
Unsecured hybrid notes
The unsecured hybrid notes currently carrying a 5.25% per annum coupon rate have a maturity date of December 22, 2080. Interest
is payable semi-annually on June 22 and December 22 of each year the notes are outstanding from December 22, 2020 to, but
excluding, December 22, 2030. From, and including, December 22, 2030, during each Interest Reset Period (as defined in the applicable
indenture) during which the notes are outstanding, the interest rate on the unsecured hybrid notes will be reset at a fixed rate per
annum equal to the 5-Year Government of Canada Yield on the business day prior to such Interest Reset Date (as defined in the
applicable indenture) plus, (i) for the period from, and including, December 22, 2030 to, but not including, December 22, 2050, 4.715%
and (ii) for the period from, and including, December 22, 2050 to, but not including, the maturity date, 5.465% in each case, to be
reset by the Calculation Agent (as defined in the applicable indenture) on each Interest Reset Date and with the interest during such
period payable in arrears, in equal semi-annual payments on June 22 and December 22 in each year.
The indenture governing the terms of the unsecured hybrid notes, as supplemented, contains certain redemption options whereby
the Company can redeem all or part of the unsecured hybrid notes at such prices and on such dates as set forth therein. In addition,
the holders of the unsecured hybrid notes have the right to require the Company to repurchase the unsecured hybrid notes at the
purchase prices set forth in the applicable indenture in the event of a change in control triggering event, being both a change of
control of the Company or a ratings decline of the applicable notes to below an investment grade rating, as such terms are defined in
the applicable indenture.
The unsecured hybrid notes receive a 50% equity treatment by the Company’s rating agencies, under certain conditions.
Cash Flow Summary
The Company’s operating cash flow is generally impacted by the overall profitability and working capital requirements 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.
The following table summarizes the Company’s sources and uses of funds from operations for the years ended December 31, 2021
and 2020:
Statement of cash flows
($ thousands)
Cash inflow (outflow):
Operating activities
Investing activities
Financing activities
Net change in cash and cash equivalents
Years ended December 31,
2021
2020
Change
216,806
(127,060)
(82,955)
6,791
459,551
(303,954)
(149,399)
6,198
(242,745)
176,894
66,444
593
11
Cash inflow from operating activities
Cash inflow from operating activities was $216.8 million for the year ended December 31, 2021, compared to $459.6 million in the
year ended December 31, 2020. The changes were driven by the following:
o Cash outflow from changes in working capital of $183.1 million in the year ended December 31, 2021, compared to cash
inflow of $27.3 million in the prior year. The change was primarily driven by changes in items of working capital balances,
largely related to increasing commodity prices throughout 2021 and the impact of higher inventory levels held in storage;
and
o Higher income tax installments paid in the year ended December 31, 2021 compared to prior year by $21.5 million.
Cash inflow and outflow from operating activities and working capital requirements for the Marketing segment are 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, 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, asphalt and other products and fees for services associated with the Company’s Infrastructure
segment. Offsetting these collections are payments for purchases of crude oil and other products, primarily within the Marketing
segment, and other expenses. Historically, the Marketing 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 (refer to “Results of Operations and Trends Impacting the
Business” section for more details).
Cash outflow from investing activities
Cash outflow from investing activities was $127.1 million in the year ended December 31, 2021, compared to $304.0 million in the
year ended December 31, 2020 and consists primarily of capital expenditures related to the construction of infrastructure at the
Hardisty and Edmonton Terminals, and contributions to our equity investment to fund construction of the DRU. The period over period
decrease primarily resulted from the relative stage of construction on each of these projects and the decrease in the growth capital
budget for 2021, relative to 2020. For a summary of capital expenditures, see the “Capital Expenditures and Equity Investments”
discussion included in this MD&A.
Cash outflow from financing activities
Cash outflow from financing activities was $83.0 million in the year ended December 31, 2021 compared to $149.4 million in the year
ended December 31, 2020. The net decrease of $66.4 million was primarily related to the Company’s draws on the Revolving Credit
Facility of $210.0 million in the current year compared to the net proceeds receiving from refinancing activity in the prior year of
$173.0 million. Furthermore, when compared to the prior annual period, there was a reduction in the Company’s interest payments
of $7.8 million, lease payments of $9.3 million and share repurchases under the Company’s normal course issuer bid of $18.6 million.
This was partially offset by higher aggregate dividends paid in the current year of $6.1 million.
Credit Ratings and Covenants
The Company’s ability to access debt in the capital markets depends, in part, on the credit ratings determined by rating agencies for
the Company’s debt. A downgrade could increase the interest rates applicable to borrowings under the Revolving Credit Facility or
increase the interest rate applicable on any new or restructured debt issuances. Credit ratings are intended to provide investors with
an independent measure of credit quality of an issue of securities. Credit ratings are not recommendations to purchase, hold or sell
securities and do not address the market price or suitability of a specific security for a particular investor. There is no assurance that
any rating will remain in effect for any given period of time or that any rating will not be revised or withdrawn entirely by a rating
agency in the future if, in its judgment, circumstances so warrant.
Rating agencies will regularly evaluate our financial strength. A credit rating downgrade could impair the Company’s ability to enter
into arrangements with suppliers or counterparties and could limit its access to private and public credit markets in the future and
increase the costs of borrowing. The Company’s senior unsecured notes are rated, on a solicited basis, by DBRS Limited as ‘BBB (low)’
and Standard & Poor’s Rating Services, a division of the McGraw-Hill Companies, as ‘BBB-’. For a fulsome discussion of credit ratings,
and their impact on the Company, refer to the AIF.
The Company is also required to meet certain specific and customary affirmative and negative financial covenants under its Revolving
Credit Facility, senior unsecured notes and unsecured hybrid notes, including the maintenance of certain financial ratios, requiring
the Company to maintain a total consolidated debt to capitalization ratio not greater than 65% as well as to maintain a minimum
consolidated interest coverage ratio of no less than 2.5 to 1.0. The consolidated total debt to capitalization ratio represents the ratio
12
of all debt obligations on the financial statements to total capitalization (total debt plus total shareholders’ equity, including certain
adjustments). The consolidated interest coverage ratio represents the ratio of Consolidated EBITDA (as defined by the Revolving Credit
Facility) to consolidated cash interest expense calculated in accordance with the Revolving Credit Facility.
As at December 31, 2021, the Company was in compliance with the financial ratios with the total consolidated debt to capitalization
ratio at 50% and the consolidated interest coverage ratio at 10.9 to 1.0. The covenant tests used for debt purposes excludes all of the
unsecured hybrid notes, and the interest thereon, in the calculation. An event of default resulting from a breach of a financial covenant
may result, at the option of the lenders holding a majority of the indebtedness, in an acceleration of the repayment of the principal
and interest outstanding and a termination of the Revolving Credit Facility.
The senior unsecured notes, unsecured hybrid notes and 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. They also contain customary events
of default, including defaults based on bankruptcy and insolvency, non-payment of principal, interest and fees when due, breach of
covenants, change in control and material inaccuracy of representations and warranties, subject to specified grace periods.
As at December 31, 2021, the Company was in compliance with all existing covenants under the senior unsecured notes, unsecured
hybrid notes and Revolving Credit Facility.
For additional information regarding these financial covenants or definitions refer to various debt agreements available on our SEDAR
profile at www.sedar.com.
Dividends
The Company is currently paying quarterly dividends to holders of its common shares. The amount and timing of any future dividends
payable by the Company will be at the discretion of the Board and established on the basis of, among other items, the Company’s
earnings, funding requirements for operations, the satisfaction of a solvency calculation, and the terms of the Company’s debt
agreements and indentures. In addition, in connection with Company’s prior practice, after each fiscal year end the Board will formally
review the annual dividend amount. During the year ended December 31, 2021, the Board declared dividends of $1.40 per common
share.
Contractual Obligations and Contingencies
The following table presents the Company’s obligations, and commitments to make future payments under contracts and contingent
commitments as at December 31, 2021:
($ thousands)
Long-term debt
Interest payments on long-term debt
Lease and other commitments (1)
Total contractual obligations
Payments due by period
Total
1,670,000
994,123
87,091
2,751,214
Less than
1 year
-
48,350
30,299
78,649
1-3 years
3-5 years
-
96,700
38,018
134,718
595,000
85,420
16,643
697,063
More than
5 years
1,075,000
763,653
2,131
1,840,784
(1)
Lease and other commitments relate to office leases, rail cars, vehicles, field buildings, and various equipment leases.
The Company had provisions associated with site restoration on the retirement of assets and environmental costs of $180.3 million
but the timing of such payments is uncertain due to the estimates used to calculate these amounts and the long-term nature of these
balances. The Company also has commitments relating to its risk management contracts which are discussed further in “Quantitative
and Qualitative Disclosures about Market Risks”.
Contingencies
The Company is involved in various claims and actions arising in the course of operations and is subject to various legal actions and
exposures. Accruals for litigation, claims and assessments are recognized if the Company determines that the loss is probable, and the
amount can be reasonably estimated. The Company believes it has made adequate provisions for such legal claims. Although the
outcome of these claims is uncertain, the Company does not expect these matters to have a material adverse effect on the Company’s
financial position, cash flows or operational results. If an unfavorable outcome were to occur, there exists the possibility of a material
adverse impact on the Company’s consolidated net income or loss in the period in which the outcome is determined. While fully
supportable in the Company’s view, some of these positions if challenged, may not be fully sustained on review.
13
The Company is subject to various regulatory and statutory requirements relating to the protection of the environment. These
requirements, in addition to the contractual agreements and management decisions, result in the recognition of estimated
decommissioning obligations and environmental remediation. Estimates of decommissioning obligations and environmental
remediation costs can change significantly based on such factors as operating experience and changes in legislation and regulations.
CAPITAL EXPENDITURES AND EQUITY INVESTMENTS
($ thousands)
Infrastructure
Marketing
Corporate and other projects
Growth capital (1)
Equity investments
Replacement capital (1)
Total
Year ended December 31,
2021
118,484
2,308
3,795
124,587
29,210
22,600
176,397
(1) Growth capital and replacement capital are supplementary financial measures. See the “Specified Financial Measures” section of this MD&A for information
on each supplementary financial measure.
The Company continues to invest capital primarily in expanding and augmenting existing terminals and associated infrastructure at
the Hardisty Terminal, the Edmonton Terminal and in the U.S., along with the completion of the construction of the DRU. The Company
also continues to engage in numerous commercial discussions for additional infrastructure. Growth capital expenditures reflect
projects intended to improve the Company’s profitability directly or indirectly. The following represents key activities with respect to
major growth projects during the year ended December 31, 2021:
o
o
o
HET commenced operations of the DRU, which is under a long-term take-or-pay contract.
The Company began construction on the previously announced biofuels blending project at the Edmonton Terminal to
facilitate the storage, blending and transportation of renewable diesel, with the project intended to be in-service in the
second quarter of 2022. The project is currently expected to be completed on time and on budget.
The Company began preliminary work on the previously announced 435,000-barrel tank at our Edmonton Terminal, under
a long-term, take-or-pay contract with a new investment grade customer, expected to be placed in-service in 2023. The
project is currently expected to be completed on time and on budget.
Corporate and other projects represent spending on information technology initiatives at the corporate and business unit level.
Replacement capital expenditures intend to keep the Company’s existing infrastructure reliably and safely operating. These
expenditures include replacement of existing infrastructure, maintenance work which extends the economic life, scheduled tank and
pipeline inspections.
2022 planned capital expenditures
On December 6, 2021, the Company announced its 2022 growth capital expenditure target of approximately $150 million with an
additional allocation of between $25 million and $30 million in replacement capital expenditures. 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.
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.
OUTSTANDING SHARE DATA
The Company is authorized to issue an unlimited number of common shares and an unlimited number of preferred shares, provided
that the number of preferred shares that may be issued and outstanding at any time shall be limited to a number equal to not more
than 20% of the number of issued and outstanding common shares at the time of issuance of any preferred share. As at December
31, 2021, there were 146.6 million common shares outstanding and no preferred shares outstanding. In addition, under the
14
Company’s equity incentive plan, there were an aggregate of 2.4 million restricted share units, performance share units and deferred
share units outstanding and 1.8 million stock options outstanding as at December 31, 2021.
As at December 31, 2021, common share awards available to grant under the equity incentive plan were approximately 4.6 million.
As at February 18, 2022, 146.6 million common shares, 2.5 million restricted share units, performance share units and deferred share
units and 1.8 million stock options were outstanding.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is involved in various commodity related marketing activities that are intended to enhance the Company’s operations
and increase profitability. These activities often create exposure to price risk between the time contracted volumes are purchased
and sold and to foreign exchange risk when contracts are in different currencies (Canadian dollar versus U.S. dollar). The Company is
also exposed to various market risks, including volatility in (i) crude oil, refined products, natural gas and NGL prices, (ii) interest rates,
and (iii) currency exchange rates. The Company utilizes various derivative instruments from time to time to manage commodity price,
interest rate, currency exchange rate, 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 risk. The Company has a Commodity Risk Management Committee that has direct responsibility to oversee the
Company’s risk policies, 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 Marketing business. 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 typically hedges its exposure to price fluctuations with respect to crude oil, refined products,
natural gas, differentials and NGLs, and expected purchases and sales of these commodities (relating primarily to crude oil, roofing
flux and purchases of NGL). 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. 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 generally 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 a strategy to take advantage of
anticipated market opportunities and/or 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 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. 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. All derivative positions offset existing or anticipated physical exposures. Price-risk sensitivities were calculated
by assuming 15% volatility in crude oil, differentials 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 in crude oil and NGL prices would increase the Company’s net income by $21.2 million and $12.2
million as of December 31, 2021 and 2020. A 15% unfavorable change in crude oil and NGL prices would decrease the Company’s net
income by $21.2 million and $12.2 million as of December 31, 2021 and 2020. However, these changes may be offset by the use of
one or more risk management strategies.
Interest rate risk. The Company’s long-term debt, excluding the Revolving Credit Facility, accrues interest at fixed interest rates and
accordingly, changes in market interest rates do not expose the Company to future interest cash outflow variability. At December 31,
2021, the Company had $270.0 million drawn under the Revolving Credit Facility which 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, U.S. LIBOR, U.S. Base Rate or Canadian
Bankers’ Acceptance Rate, plus an applicable margin based on the Company’s total leverage ratio. A 1% increase or decrease in
interest rates would, based on current rates and balances, decrease or increase the Company’s net income by $2.7 million (as at
December 31, 2020 – $0.6 million).
15
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 revenue and purchase transactions denominated in foreign currencies. Generally, transactional currency
exposures are naturally hedged (i.e. revenue and expenses are approximately matched), but, where appropriate, are covered using
forward exchange contracts or currency swaps. All of the foreign currency forward exchange contracts including currency swaps
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. The
Company expects to continue to enter into financial derivatives, primarily forward contracts and currency swaps, to reduce foreign
exchange volatility.
As at December 31, 2021, the Company had no U.S. dollar denominated debt as part of its draw on its Revolving Credit Facility.
CRITICAL ACCOUNTING JUDGEMENTS AND ESTIMATES
The preparation of consolidated financial statements in conformity with GAAP 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, or the Infrastructure or Marketing segments
individually. The Company’s critical accounting policies and estimates are as follows:
Recoverability of asset carrying values: 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 the higher of value in use (“VIU”) and fair value less costs of disposal (“FVLCD”) calculations that 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. Any impairment charges booked against the goodwill or other
assets are recorded outside the segment profit measure, therefore do not impact either the Infrastructure segment profit or the
Marketing segment profit.
In the impairment analysis of the Company’s assets, some of the key assumptions used are budgeted earnings before interest, taxes,
depreciation and amortization less corporate expenses (“EBITDA”) which involves estimating revenue growth rates, future commodity
prices, expected margins, expected sales volumes, cost structures, multiples of comparable public companies of the operating
segment, terminal value and discount rates.
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 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 included in interest 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. Income tax expense do not impact either the
Infrastructure segment profit or the Marketing segment profit.
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.
16
Joint arrangements
The determination of joint control requires judgment about the influence the Company has over the financial and operating decisions
of an arrangement and the extent of the benefits it obtains based on the facts and circumstances of the arrangement during the
reporting period. Joint control exists when decisions about the relevant activities require the unanimous consent of the parties that
control the arrangement collectively. Ownership percentage alone may not be a determinant of joint control. The Company’s joint
arrangements are primarily within the infrastructure business, and therefore impacts the Infrastructure segment profit.
Once joint control has been determined, the arrangement is classified as a joint venture or a joint operation, depending on the rights
and obligations of the parties to the agreement.
Provisions and accrued liabilities: The Company uses estimates to record liabilities for obligations associated with site restoration on
the retirement of assets and environmental costs, taxes, potential legal claims and other accruals and liabilities.
Liabilities for site restoration on the retirement of assets are recognized when the Company has an obligation to restore the site and
when a reliable estimate of that liability can be made. An obligation may also crystallize during the period of operation of a facility
through a change in legislation or through a decision to terminate operations. The amount recognized is the present value of the
estimated future expenditure determined in accordance with local conditions and requirements. The present value is determined by
discounting the expenditures expected to be required to settle the obligation using a risk-free discount rate. Estimated future
expenditure is based on all known facts at the time and current expected plans for decommissioning. Among the many uncertainties
that may impact the estimates are changes in laws and regulations, public expectations, prices and changes in technology. A
corresponding item of property, plant and equipment of an amount equivalent to the provision is also recorded. This is subsequently
depreciated as part of the asset. Other than the unwinding discount on the provision, any change in the present value of the estimated
expenditure is reflected as an adjustment to the provision and the corresponding item of property, plant and equipment. During the
year ended December 31, 2021, the Company adjusted the estimated expenditure for decommissioning of its Moose Jaw Refinery
due to a reduction in expected cash outflows required to extinguish the Company’s obligation, as disclosed in note 16 to the
consolidated financial statements.
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 several 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. Several 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.
ACCOUNTING POLICIES
Initial adoption of accounting policies
New and amended standards adopted by the Company:
During the year ended December 31, 2021, there were no new or amended IFRS standards adopted by the Company.
New and amended standards and interpretations issued but not yet adopted:
The Company has assessed the impact of the following amendments to the standards and interpretations applicable for future periods
and do not expect these to have a material impact on the Company’s consolidated financial statements at the adoption date:
o
o
IAS 1 – Presentation of Financial Statements (“IAS 1”), has been amended to clarify how to classify debt and other liabilities
as either current or non-current. The amendment to IAS 1 is effective for the years beginning on or after January 1, 2023;
The annual improvements process addresses issues in the 2018-2020 reporting cycles including changes to IFRS 9, Financial
Instruments, IFRS 1, First Time Adoption of IFRS, IFRS 16, Leases, and IAS 41, Biological Assets. These improvements are
effective for periods beginning on or after January 1, 2022;
17
o
o
IAS 37 – Provisions (“IAS 37”), has been amended to clarify (i) the meaning of “costs to fulfil a contract”, and (ii) that, before
a separate provision for an onerous contract is established, an entity recognizes any impairment loss that has occurred on
assets used in fulfilling the contract, rather than on assets dedicated to that contract. These amendments are effective for
periods beginning on or after January 1, 2022; and
IAS 16 – Property, Plant and Equipment (“IAS 16”), has been amended to (i) prohibit an entity from deducting from the
cost of an item of PP&E any proceeds received from selling items produced while the entity is preparing the asset for its
intended use (for example, the proceeds from selling samples produced when testing a machine to see if it is functioning
properly), (ii) clarify that an entity is “testing whether the asset is functioning properly” when it assesses the technical and
physical performance of the asset, and (iii) require certain related disclosures. These improvements are effective for
periods beginning on or after January 1, 2022.
The Company continues to assess the impact of the following amendment:
o
IAS 12 – Income Taxes (“IAS 12”), has been amended to recognize deferred tax on particular transactions that, on initial
recognition, give rise to equal amounts of taxable and deductible temporary differences. These amendments are effective
for periods beginning on or after January 1, 2023.
DISCLOSURE CONTROLS & PROCEDURES
As part of the requirements mandated by the Canadian securities regulatory authorities under NI 52-109, the Company’s Chief
Executive Officer and Chief Financial Officer have evaluated the design and operation of the Company’s DC&P, as such term is defined
in NI 52-109, as at December 31, 2021. The Chief Executive Officer and Chief Financial Officer are also responsible for establishing and
maintaining the Company’s 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 GAAP. The Company’s Chief Executive Officer and
Chief Financial Officer have evaluated, or caused to be evaluated under their supervision, the design and operational effectiveness of
such controls as at December 31, 2021.
Based on the evaluation of the design and operating effectiveness of the Company’s DC&P and ICFR, the Chief Executive Officer and
the Chief Financial Officer concluded that the Company’s DC&P and ICFR were effective as at December 31, 2021. There have been
no changes in ICFR that occurred during the period beginning January 1, 2021 and ending on December 31, 2021 that has materially
affected or is reasonably likely to materially affect the Company’s ICFR.
SPECIFIED FINANCIAL MEASURES
The Company uses a number of financial measures when assessing its results and measuring overall performance. Some of these
financial measures are not calculated in accordance with GAAP. NI 52-112 prescribes disclosure requirements that apply to non-GAAP
financial measures, non-GAAP ratios, supplementary financial measures, capital management measures, and total of segments
measures.
NON-GAAP FINANCIAL MEASURES
The Company uses non-GAAP financial measures that do not have standardized meanings under GAAP and that therefore may not be
comparable to similar measures used by other companies. Presenting non-GAAP financial measures helps readers to better
understand how management analyzes results, shows the impacts of specified items on the results of the reported periods, and allows
readers to assess results without the specified items if they consider such items not to be reflective of the underlying performance of
the Company’s operations. The non-GAAP financial measures used by the Company are adjusted EBITDA and distributable cash flow.
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. 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, cash flow from operating activities, segment profit, gross profit or other measures of financial results determined in
accordance with GAAP as an indication of the Company’s performance.
Noted below is the additional information about the composition of these non-GAAP financial measures, including the quantitative
reconciliation, as required by NI 52-112:
18
a) Adjusted EBITDA
Adjusted EBITDA helps readers to better understand how management analyzes results, shows the impacts of specified items on the
results of the reported periods, and allows readers to assess results without the specified items if they consider such items not to be
reflective of the underlying performance of the Company’s operations. Adjusted EBITDA is defined as earnings before net interest,
tax, depreciation, amortization and impairment charges, and specific non-cash charges, including but not limited to unrealized
gain/loss on derivative financial instruments, stock-based compensation, adjustment for equity accounted investees (to remove non-
cash charges), and corporate foreign exchange gain/loss. These adjustments are made to exclude non-cash charges and other items
that are not reflective of ongoing earning capacity of the operations.
Effective Q1 2021, the Company updated the definition of adjusted EBITDA to remove the corporate foreign exchange gains/losses
and interest income, while adding an adjustment for equity accounted investees to remove the depreciation, amortization and other
non-cash items that are not reflective of the ongoing earnings capacity of the operations. In accordance with GAAP, certain jointly
controlled investments are accounted for using equity method accounting whereby the assets and liabilities of the investment are
presented in a single line item in the consolidated balance sheet and net earnings from investments in equity accounted investees are
recognized within the infrastructure segment profit or within the gross profit in the statement of operations. Cash contributions and
distributions from investments in equity accounted investees represent the Company's share paid and received in the period to and
from the investments in equity accounted investees. To assist in understanding and evaluating the performance of these investments,
the Company adjusts for its proportionate share of select non-cash expenses, included in equity accounted investees in adjusted
EBITDA. Prior period comparative figures have been restated in accordance with the updated definition of adjusted EBITDA set out
above.
Noted below is the reconciliation to the most directly comparable GAAP measures of the Company’s segmented and consolidated
adjusted EBITDA for the three months and years ended December 31, 2021 and 2020:
Three months ended December 31
Infrastructure
Marketing
($ thousands)
2021
2020 (1)
2021
2020 (1)
Corporate &
Adjustments
2021
2020 (1)
Total
2021
2020 (1)
Segment Profit
Unrealized (gain) loss on derivative
financial instruments
General and administrative
Adjustments to share of profit from
equity accounted investees
Adjusted EBITDA (1)
105,307
93,239
15,360
(8,894)
-
-
120,667
84,345
-
-
-
-
(9,683)
-
4,874
-
-
(7,836)
-
(7,834)
(9,683)
(7,836)
4,874
(7,834)
614
105,921
503
93,742
-
5,677
-
(4,020)
-
(7,836)
-
(7,834)
614
103,762
503
81,888
Years ended December 31
Infrastructure
Marketing
($ thousands)
2021
2020 (1)
2021
2020 (1)
Corporate &
Adjustments
2021
2020 (1)
Total
2021
2020 (1)
Segment Profit
Unrealized loss on derivative financial
instruments
General and administrative
Adjustments to share of profit from
equity accounted investees
Adjusted EBITDA (1)
433,929
374,424
41,267
94,623
-
-
475,196
469,047
-
-
-
-
1,952
-
9,618
-
-
(34,481)
-
(33,081)
1,952
(34,481)
9,618
(33,081)
2,551
436,480
(669)
373,755
-
43,219
-
104,241
-
(34,481)
-
(33,081)
2,551
445,218
(669)
444,915
(1) Adjusted EBITDA for periods prior to March 31, 2021 has been restated on the basis described above.
19
($ thousands)
Net Income
Income tax expense (recovery)
Depreciation, amortization, and impairment charges
Net finance costs
Unrealized (gain) loss on derivative financial instruments
Stock-based compensation
Adjustments to share of profit from equity accounted investees
Corporate foreign exchange loss
Adjusted EBITDA (1)
($ thousands)
Net Income
Income tax expense
Depreciation, amortization, and impairment charges
Net finance costs
Unrealized loss on derivative financial instruments
Stock-based compensation
Adjustments to share of profit from equity accounted investees
Corporate foreign exchange loss (gain)
Adjusted EBITDA (1)
Three months ended December 31,
2020 (1)
2021
43,917
12,442
6,897
41,255
14,961
(9,683)
5,235
614
566
103,762
(2,951)
44,566
15,694
4,874
5,726
503
1,034
81,888
Years ended December 31,
2020 (1)
2021
145,053
121,309
36,184
173,861
61,344
1,952
23,335
2,551
938
445,218
29,369
169,422
96,420
9,618
21,144
(669)
(1,698)
444,915
Noted below are the reconciliation to the most directly comparable GAAP measures for the consolidated Adjusted EBITDA for the past
eight quarters:
Consolidated
($ thousands)
2021
2020 (1)
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Segment Profit
Unrealized (gain) / loss on financial
instruments
General and administrative
Adjustments to share of profit from
equity accounted investees
Adjusted EBITDA (1)
120,667
116,302
123,118 115,109
84,345
116,704
133,887
134,111
(9,683)
(7,836)
2,249
(9,238)
12,970
(8,675)
(3,584)
(8,732)
4,874
(7,834)
(10,594)
(7,947)
19,600
(8,377)
(4,262)
(8,923)
614
103,762
1,403
110,716
265
269
127,678 103,062
503
81,888
2,662
100,825
(594)
144,516
(3,240)
117,686
(1) Adjusted EBITDA for periods prior to March 31, 2021 has been restated on the basis described above.
20
Consolidated Adjusted EBITDA
($ thousands)
2021
2020 (1)
Q4
Q3
Q2
Q1
Q4
Q3
Q2
Q1
Net income
43,917
35,996
32,363
32,777
12,442
17,550
41,314
50,003
Income tax expense (recovery)
Depreciation, amortization, and
impairment charges
Net finance costs
Unrealized (gain) / loss on derivative
financial instruments
Stock based compensation
Adjustments to share of profit from
equity accounted investees
6,897
11,018
10,185
8,084
(2,951)
1,514
13,489
17,317
41,255
39,425
51,897
41,284
44,566
44,416
40,303
40,137
14,961
15,612
15,783
14,988
15,694
38,063
23,331
19,332
(9,683)
2,249
12,970
(3,584)
4,874
(10,594)
19,600
(4,262)
5,235
4,864
4,284
8,952
5,726
4,683
4,710
6,025
614
1,403
265
269
503
2,662
(594)
(3,240)
Corporate foreign exchange loss (gain)
Adjusted EBITDA (1)
566
103,762
149
110,716
(69)
127,678
292
103,062
1,034
81,888
2,531
100,825
2,363
144,516
(7,626)
117,686
(1) Adjusted EBITDA for periods prior to March 31, 2021 has been restated on the basis described above.
b) Distributable Cash Flow
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 and is frequently used by securities analysts, investors, and other interested parties. 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. Replacement capital expenditures and lease payments 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 an unusual,
non-recurring, or non-operating in nature. The following is a reconciliation of distributable cash flow from operations to its most
directly comparable GAAP measure, cash flow from operating activities:
($ thousands)
Cash flow from operating activities
Adjustments:
Changes in non-cash working capital and taxes paid
Replacement capital
Cash interest expense, including capitalized interest
Lease payments
Current income tax
Distributable cash flow
NON-GAAP FINANCIAL RATIOS
Three months ended
December 31,
2020
2021
Years ended December 31,
2021
2020
3,186
44,940
216,806
459,551
94,678
(8,399)
(14,149)
(7,008)
(3,912)
64,396
31,253
(5,069)
(11,618)
(10,764)
5,354
54,096
212,825
(22,600)
(54,218)
(36,694)
(25,046)
291,073
(19,109)
(22,751)
(53,557)
(44,967)
(20,279)
298,888
The Company uses non-GAAP ratios that do not have standardized meanings under GAAP and that therefore may not be comparable
to similar measures used by other companies. A non-GAAP ratio is a ratio in which at least one component is a non-GAAP financial
measure. The Company uses non-GAAP ratios to present aspects of its financial performance or financial position, including dividend
payout ratio and net debt to adjusted EBITDA ratio. Noted below is the additional information about the composition of these ratios
as required by NI 52-112.
21
a) Dividend Payout Ratio
Dividend payout ratio is a non-GAAP ratio defined as dividends declared divided by distributable cash flow, on a rolling 12-month
basis. This measure is used by securities analysts, investors and others as an indication of the Company’s ability to generate cash flows
to continue to pay dividends, and the proportion of cash generated that is used to pay dividends to shareholders.
Distributable cash flow
Dividends declared
Dividend payout ratio
b) Net Debt To Adjusted EBITDA Ratio
Years ended December 31,
2020
298,888
198,667
66%
2021
291,073
205,154
70%
Net debt to adjusted EBITDA is a non-GAAP ratio, which uses net debt divided by adjusted EBITDA. The Company, lenders, investors
and analysts use this ratio to monitor the Company’s capital structure, financing requirements and measuring its ability to cover debt
obligations over time. Net debt is not a standardized financial measure under GAAP and may not be comparable with measures
disclosed by other companies and is a capital management measure.
Net debt is total borrowings (including ‘current and non-current borrowings’, and lease liabilities), less unsecured hybrid notes and
cash and cash equivalents. Unsecured hybrid notes are excluded as the Company views this as part of its equity.
Long-term debt
Lease liabilities
Less: unsecured hybrid debt
Less: cash and cash equivalents
Net debt
Adjusted EBITDA
Net debt to adjusted EBITDA ratio
Supplementary Financial Measures
Years ended and as at December 31,
2020
2021
1,660,609
81,779
(250,000)
(62,688)
1,429,700
445,218
3.2
1,449,481
102,742
(250,000)
(53,676)
1,248,547
444,915
2.8
A supplementary financial measure is a financial measure that: (a) is not reported in the Company’s consolidated financial statements,
and (b) is, or is intended to be, reported periodically to represent historical or expected financial performance, financial position, or
cash flows. The supplementary financial measures the Company uses are identified below:
Growth capital expenditures reflect projects intended to improve the Company’s profitability directly or indirectly.
Growth capital including equity investments includes both growth capital, and amounts invested in the Company’s equity
investments intended to improve the investments profitability directly or indirectly.
Replacement capital expenditures intend to keep the Company’s existing infrastructure reliably and safely operating. These
expenditures include replacement of existing infrastructure, maintenance work which extends the economic life, scheduled
tank and pipeline inspections.
Capital Management Measures
The financial reporting framework used to prepare the financial statements requires disclosure that help readers assess the
Company’s capital management objectives, policies, and processes, as set out in IFRS in IAS 1 – Presentation of Financial Statements
(“IAS 1”). The Company has its own methods for managing capital and liquidity, and IFRS does not prescribe any particular calculation
method. In addition to GAAP measures, the Company uses capital management measures net debt and total capital.
The composition, usefulness and quantitative reconciliation of capital management measures are presented in ”Liquidity, Capital
Resources and Capital Structure” section of this MD&A and within note 24 of the consolidated financial statements.
22
Total of Segments Measures
The Company uses the sum of the total segment revenue and the segment profit of its business segments (namely, Infrastructure and
Marketing) in the analysis performed under the “Operating results” section within this MD&A. Using this method to analyze results,
that is, by reflecting inter-segment revenue and profit within segment metrics, the Company can evaluate the relative performance
of each segment on a standalone basis.
The Company defines segment profit as revenue less cost of sales (excluding depreciation, amortization and impairment charges) and
operating expenses. Segment profit also includes the Company’s share of equity pick up from equity accounted investees. Profit by
segment excludes depreciation, amortization, accretion, impairment charges, stock-based compensation, and corporate expenses
such as income taxes, interest and general and administrative expenses, as senior management looks at each period’s earnings before
corporate expenses and non-cash items, as one of the Company’s important measures of segment performance. 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, tanks, pipelines and connections, and plant and equipment) 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.
($ thousands)
Segment revenue
Infrastructure
Marketing
Total segment revenue
Revenue – inter-segmental
Total revenue – external
Segment profit
Infrastructure
Marketing
Total segment profit
($ thousands)
Gross Profit
Depreciation, amortization and impairment
Gain and loss on sale of assets
Other income
Corporate foreign exchange gains and losses
Segment profit
RISK FACTORS
Three months ended December 31,
2020
2021
Years ended December 31,
2020
2021
126,781
2,087,825
2,214,606
(95,579)
2,119,027
105,307
15,360
120,667
116,214
1,262,729
1,378,943
(58,254)
1,320,689
93,239
(8,894)
84,345
519,762
6,963,581
7,483,343
(272,195)
7,211,148
433,929
41,267
475,196
465,320
4,665,425
5,130,745
(192,679)
4,938,066
374,424
94,623
469,047
Three months ended December 31,
2020
2021
Years ended December 31,
2020
2021
82,197
37,431
822
794
(577)
120,667
40,058
41,932
244
-
2,111
84,345
304,411
306,140
162,920
3,189
3,663
1,013
475,196
158,138
1,217
2,364
1,188
469,047
Shareholders and prospective investors should carefully evaluate risk factors noted by the Company before investing in the Company’s
securities, as each of these risks may negatively affect the trading price of the Company’s securities, the amount of dividends paid to
shareholders and the ability of the Company to fund its debt obligations, including debt obligations under its outstanding notes and
any other debt securities that the Company 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 the Company’s performance and steps the company takes to mitigate these risks, readers are
referred to the AIF, which is available on SEDAR at www.sedar.com.
23
COVID-19 Pandemic
Although mass vaccination and booster programs have been implemented by many jurisdictions and governments at varying levels
have begun to lessen or remove restrictions, there can be no certainty that vaccinations and boosters will successfully control the
spread or resurgence of COVID-19 and its variants over the long-term. Accordingly, any resurgence or emergence of new variants may
have a negative impact on the Company's business or the broader economy.
While high vaccination rates have enabled the reopening of many areas of the economy, governments will continue to closely monitor
the spread of COVID-19 and its variants, which may lead to the reintroduction of restrictive measures to counter any successive wave
or resurgence of COVID-19 or its variants. Accordingly, the Company’s financial and/or operating performance could be materially
adversely impacted by way of suspensions, delays or cancellations of the Company’s projects, either by its customers or due to broader
government directives, slowdowns or stoppages in the performance of projects due to labor shortages, union action and/or high levels
of absenteeism, supply chain disruptions and corresponding shortages, increased collection risk from customers, volatility in capital
markets, inflation and decreases in customer demand as a result of the impacts of government imposed restrictions, including reduced
prices of and global demand for petroleum products caused by travel restrictions and other shut-downs. For a discussion of the risks
associated with decreases in the prices of and demand for crude oil and petroleum products, see "Market and Commodity Price Risk"
and "Demand for Crude Oil and Petroleum Products".
The partial or complete shut-down of our workplaces, our employees working remotely, and the implementation of enhanced health
and safety measures in our workplaces may reduce the efficiency and increase the costs of our operations and may adversely affect
the Company’s margins, profitability and results. Further, the increased remote access to our information technology systems may
heighten the threat of a cyber-security breach. The COVID-19 pandemic, or its long-term impacts, may also increase our exposure to,
and magnitude of, each of the risks identified in the “Risk Factors” section of this MD&A and the risk factors described in other
documents the Company files from time to time with Canadian securities regulatory authorities, available on SEDAR at
www.sedar.com and on the Company's website at www.gibsonenergy.com.
The Company has implemented a business continuity plan and has enacted its emergency response plan to provide centralized, cross-
functional, strategic direction during the COVID-19 pandemic. While these measures may partially mitigate the impact of the COVID-
19 pandemic, minimize recovery time and reduce business losses, the plans can neither account for nor control all possible events.
The COVID-19 pandemic, therefore, may continue to have adverse financial and operational implications for the Company as the
situation continues to evolve.
Additionally, the duration and extent of the impact from the COVID-19 pandemic remains uncertain and depends on future
developments that cannot be accurately predicted at this time, such as i) the severity, transmission rate and resurgence of the COVID-
19 virus or its variants, ii) the timing, extent and effectiveness of containment actions, including the approval, availability,
effectiveness, continued uptake and distribution rate of vaccines and boosters, iii) the speed and extent to which normal economic
and operating conditions resume and are maintained worldwide, and iv) the impact of these and other factors on our stakeholders,
particularly those upon whom we have a major reliance, including our customers, vendors and employees. The COVID-19 pandemic
has not yet ended; this situation continues to evolve and future impacts may materialize that are not yet known. Even after the COVID-
19 pandemic has subsided, we may continue to experience materially adverse impacts to our business as a result of the pandemic’s
global economic impact. There are no comparable recent events that provide guidance as to the effect the COVID-19 pandemic may
have, and, as a result, the ultimate impact and lasting effects on the Company's business, operations and financial condition, and on
the energy industry as whole, are highly uncertain.
Climate Change and ESG Targets and Commitments
As a part of the Company's strategic priority to retain its position as a responsible leader in the energy industry, the Company has
committed to various ESG targets, including our goal to achieve net zero Scope 1 and 2 GHG emissions by 2050. To achieve this goal,
among others, and to respond to changing market demand, the Company may incur additional costs and invest in new technologies
and innovation. It is possible that the return on these investments may be less than the Company expects, which may have an adverse
effect on the Company's business, financial condition and reputation. Further, to support our ESG goals, the Company transitioned its
principal Revolving Credit Facility into a sustainability-linked Revolving Credit Facility in the second quarter of 2021. As a result, the
Company's borrowing costs may increase depending on its ability to achieve certain ESG and sustainability targets.
Generally speaking, Gibson's ESG targets depend significantly on the Company’s ability to execute its current business strategy, related
milestones and schedules, each of which can be impacted by the numerous risks and uncertainties associated with Gibson’s business
and the industries in which it operates, as outlined in the other risk factors described in this MD&A.
The Company recognizes that its ability to adapt to and succeed in a lower-carbon economy will be compared against its peers.
Investors and stakeholders increasingly compare companies based on ESG-related performance, including climate-related
performance. Failure by the Company to achieve its ESG targets, or a perception among key stakeholders that our ESG targets are
24
insufficient, could adversely affect, among other things, our reputation and our ability to attract capital. The continued focus on
climate change by investors may lead to higher costs of capital for Gibson as the pressure to reduce emissions increases. The
Company's ability to attract capital may also be adversely impacted if financial institutions and investors incorporate sustainability
and ESG considerations as a part of their portfolios or adopt restrictive decarbonization policies.
There is also a risk that some or all of the expected benefits and opportunities of achieving the various ESG targets may fail to
materialize, may cost more to achieve or may not occur within the anticipated time periods. In addition, there are risks that the actions
taken by the Company in implementing targets and ambitions relating to ESG focus areas may have a negative impact on its existing
business and operations and increase capital expenditures, which could have a negative impact on the Company’s business, financial
condition, results of operations and cash flows.
The Company recognizes that potential climate-related impacts are complex and may impact the Company's entire enterprise,
including having physical impacts on our business as a result of an increased likelihood, severity and frequency of extreme weather
events, such as drought, severe storms and flooding, caused by climate change. These severe weather events may cause acute and
chronic physical impacts on our operations, such as mechanical malfunctions, faulty measurements, and the effects of soil erosion,
earth movement and freezing and thawing on our pipeline and other infrastructure. Specifically, certain of our operations are subject
to slope stability risks that may be exacerbated by accelerated soil erosion. Any of these physical climate-related impacts may have a
material adverse effect on our business, reputation, financial condition, results of operations, and cash flows. For more information
relating to the physical risks as a result of climate change and the potential impact on the Company's business, see "Hazards and
Operational Risks".
Market and Commodity Price Risk
The Company’s business includes activities related to product storage, terminalling and hub services. These activities expose the
Company to certain risks including that the Company may experience volatility in revenue and impairments related to the book value
of stored product, due to the fluctuations in commodity prices. Primarily, the Company enters into contracts to purchase and sell
crude oil, NGLs and refined products at floating market prices. The prices of the products that are marketed by the Company are
subject to volatility as a result of factors such as seasonal demand changes, extreme weather conditions (including flooding, wind and
increased annual levels of rainfall as a result of climate change or otherwise), market inventory levels, general economic conditions,
changes in crude oil markets and other factors. The Company manages its risk exposure by balancing purchases and sales to lock-in
margins; however, the Company may not be successful in balancing its purchases and sales. Also, in certain situations, 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.
Notwithstanding the Company’s management of price and quality risk, marketing margins for commodities can vary and have varied
significantly from period to period. This variability could have an adverse effect on the results of the Company.
In particular, since March 2020, the COVID-19 global health pandemic has significantly impacted the global economy, including
demand for hydrocarbon products. This demand destruction has had a significant impact on global energy markets and had resulted
in a significant drop in crude based commodity prices. Although commodity prices have partially recovered to pre-pandemic levels,
financial markets continue to remain volatile impacting overall economic activity as the COVID-19 pandemic continues to progress
and new COVID-19 variants emerge. The continued effect the COVID-19 pandemic on the global economy remains uncertain.
Since crude oil margins can be 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. Due to this volatility, the
Company’s margins and profitability can vary significantly. The Company expects that commodity prices will continue to fluctuate
significantly in the future. The Company utilizes financial derivative instruments as part of its overall risk management strategy to
assist in managing the exposure to commodity prices, as well as interest rates and foreign exchange risks. 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. The Company does not
trade financial instruments for speculative purposes.
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Demand for Crude Oil and Petroleum Products
Any sustained decrease in demand for crude oil and petroleum products in the markets the Company serves could result in a significant
reduction in the volume of products and services that the Company provides and thereby could significantly reduce cash flow and
revenue. Factors that could lead to a decrease in market demand include:
the impact of the COVID-19 (including its variants) pandemic, including government responses related thereto;
lower demand by consumers for refined products, including asphalt and wellsite fluids, as a result of recession or other
adverse economic conditions or due to high prices caused by an increase in the market price of crude oil, which is subject to
wide fluctuations in response to changes in global and regional supply over which the Company has no control;
an increase in fuel economy, whether as a result of a shift by consumers to more fuel-efficient vehicles, technological
advances by manufacturers, governmental or regulatory actions or otherwise;
provincial, state and federal legislation either already in place or under development, including carbon taxes or equivalents
or requiring the inclusion of ethanol and use of biodiesel which may negatively affect the overall demand for crude oil
products;
lower demand by the oil and gas drilling industry for products such as drilling mud additives and for wellsite fluids as a result
of legislation regulating hydraulic fracturing;
the energy transition and global movement towards decarbonization
consumer ESG and climate-change related targets and initiatives;
the increasing desirability, affordability and accessibility of new, low-carbon energy sources;
local and international government incentives, initiatives, policies and regulations;
technological advances in the production and longevity of alternative energy sources and electric and battery-powered
engines; and
fluctuations in demand for crude oil, such as those caused by refinery downtime or shutdowns.
The Company cannot predict and does not have control over the impact of future economic and political conditions on the energy
and petrochemical industries, which, in turn, could affect the demand for crude oil and petroleum products. As a result of decreased
demand, the Company may experience a decrease in the Company’s margins and profitability.
Pipeline Egress
There are currently large pipeline projects at various stages of development and/or regulatory approval that have the potential to
impact the Company over the medium to long-term. Over the long-term, the Company could benefit from incremental egress from
the completion of work on various pipeline projects under construction, including those currently under regulatory review. A major
egress pipeline is also currently advancing a contracting process which is currently under review by the regulators. Given the
uncertainty of the review, at this time, it is uncertain how the outcome will potentially impact how customers utilize the Company’s
infrastructure and services. In addition, certain pipelines currently in operation are facing challenges at various levels of government
and the outcome of these challenges and the impact to the Company cannot be determined at this time. Any future pipeline projects
are expected to be subject to similar review, the results of which may negatively impact our business, financial condition, results of
operations, reputation and cash flows. The nature and scope of these effects cannot be determined at this time.
Climate Change Legislation
Climate change legislation-related risks are considered by the Company as part of its ongoing risk management processes. The
materiality of such risks varies among the business operations of the Company and the jurisdictions in which such operations are
conducted. Despite the potential uncertainties and longer time horizon associated with any such risks, the Board and management
considers the impacts of climate change legislation over the short-, medium- and long-terms.
In 2018, the Canadian federal government enacted the GGPPA which established a national carbon-pricing regime requiring each
province to implement a price on carbon of $10 per tonne of CO2e in 2018, escalating by $10 each year, to an ultimate carbon price
of $50 per tonne of CO2e in 2022. The Federal Backstop allows provinces some flexibility in structuring their carbon price regimes
with cap and trade, carbon tax or output-based pricing systems, all being acceptable methods for implementing such carbon pricing.
In December 2020, the Canadian federal government released its plan to accelerate climate action in Canada, titled "A Healthy
Environment and a Healthy Economy". The plan proposes an increasing cost on carbon to $170 per tonne in 2030. To reach that level,
the price imposed on carbon will rise from the 2022 rate of $50 per tonne by $15 per tonne each year. If this proposal is made into
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law, it will have a significant impact on Canadian industry participants, consumers and the Company alike.
To the extent each province implements a carbon pricing system that meets the stringency requirements of the GGPPA, the GGPPA
will not apply. However, if such a provincial pricing system is not implemented, or does not meet the stringency requirements of the
GGPPA, the Federal Backstop will apply to the extent of such deficiency.
Alberta, Saskatchewan, and Ontario launched constitutional challenges of the Federal Backstop at their respective appellate courts.
The Saskatchewan Court of Appeal and the Ontario Court of Appeal found the Federal Backstop to be constitutional, while the Alberta
Court of Appeal found the Federal Backstop to be unconstitutional. Appeals of the decisions were heard by the Supreme Court of
Canada in September 2020 and on March 25, 2021 the Supreme Court of Canada ruled that the Federal Backstop was in fact
constitutional. Accordingly, the Federal Backstop applies to all provinces who do not meet its stringency requirements, which as of
December 31, 2021 includes Alberta, Manitoba, Ontario, and Saskatchewan.
Given the Company's operations in Alberta and Saskatchewan, the implementation of the Federal Backstop in these provinces may
materially impact the Company's current or future business (including, without limitation, increasing costs of compliance) and could
have an adverse effect on the Company’s operations, margins, profitability and results. The Supreme Court of Canada's decision to
uphold the national carbon tax may influence the regulatory landscape generally, including the introduction of higher carbon pricing,
increased energy efficiency standards, energy and emissions reduction targets and promotion of alternative fuel technologies.
Alberta
Prior to 2020, the Federal Backstop did not apply in Alberta as Alberta’s Carbon Competitiveness Incentive Regulation applicable to
large emitters, paired with the Climate Leadership Regulation which implemented a province-wide carbon tax, met the stringency
requirements of the Federal Backstop.
In 2019, the Alberta UCP government made several legislative changes including repealing the Climate Leadership Regulation, thereby
eliminating Alberta’s carbon tax and replacing the Climate Leadership Regulation with the TIER.
TIER became effective on January 1, 2020 and requires large emitters (facilities that emit 100,000 tonnes or more of CO2e in 2016 or
any subsequent year, or that are otherwise eligible to opt-in to the TIER regime) to reduce their emissions intensity to the lesser of:
(i) 10% (incrementally increased by 1% annually) below such facility's historical production-weighted average emissions intensity; or
(ii) any high performance benchmarks prescribed by TIER applicable to the production of such facility.
Facilities regulated under TIER have a number of compliance options including physical abatement of emissions, use of emission
performance credits, use of emission offsets, the purchase of TIER fund credits, or a combination of the foregoing. Persons responsible
for such regulated facilities must file annual compliance reports with the government demonstrating their compliance with TIER’s
emission intensity reduction requirements and such facilities emitting 1 megatonne (Mt) or more CO2e will have an additional
requirement to file forecasts of anticipated emissions for the following year.
The Alberta government has raised the price of TIER fund credits for 2022 to $50 per tonne of CO2e in an effort to satisfy the stringent
requirements of the Federal Backstop. However, Alberta’s repeal of the provincial carbon tax has resulted in the province’s overall
carbon pricing regime not meeting the stringency requirements of the Federal Backstop. This resulted in Alberta being added as a
"listed province" under the GGPPA such that the federal carbon tax contemplated by the Federal Backstop will be levied on fossil fuels
imported into or otherwise consumed within Alberta, other than in respect of TIER-regulated facilities.
While none of the Company’s operating facilities in Alberta are considered large emitters under TIER, the Company has voluntarily
submitted to TIER regulation in respect of several of its facilities via an "aggregate facility" designation available under TIER. Certain
conventional oil and gas facilities which do not satisfy the large emitter criteria under TIER can be aggregated together and be treated
as if they were a single aggregate facility. Accordingly, the Company is required to reduce its emission intensity in respect of such
aggregate facility in accordance with TIER, but in doing so, has avoided the application of the carbon tax pursuant to the Federal
Backstop, in respect of fuels used by such aggregate facility.
Saskatchewan
Like Alberta, Saskatchewan has implemented an output-based pricing system applicable to large emitters pursuant to its MRGGA and
related regulations including the MRGGR. Large emitters under the MRGGR are facilities in certain sectors that emit 25,000 or more
tonnes of CO2e per year, and those that emit 10,000 tonnes of CO2e per year and who opt-in to the MRGGR. Annual emission intensity
reduction requirements are specific to the product produced by the applicable regulated facility and increase in stringency over time
in prescribed increments. Like Alberta’s TIER, persons responsible for such regulated facilities must file annual compliance reports
demonstrating their compliance. Compliance options include physical abatement of emissions, using emission offsets, using emission
performance credits, purchasing technology fund credits, or a combination of the foregoing.
Saskatchewan has consistently opposed implementation of a carbon tax and the output-based pricing system contemplated by the
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MRGGR does not apply to certain industrial sectors. The Federal Backstop applies in Saskatchewan in respect of: (i) electricity
generating facilities and natural gas transmission pipelines, in the form of its own output-based pricing system applicable to such
facilities that emit 50,000 tonnes or more of CO2e in a year (with the ability for such facilities that emit 10,000 tonnes of CO2e or
more in an year to opt-in); and (ii) fossil fuels imported into or otherwise consumed within Saskatchewan, in the same manner as how
the Federal Backstop’s carbon tax is applied in Alberta.
While none of the Company’s Saskatchewan facilities are considered large emitters under the MRGGR, it has elected to "opt-in" to
the MRGGR in respect of its Moose Jaw Facility. Accordingly, the Company has been required to reduce its emission intensity in respect
of such facility in accordance with the MRGGR and, in doing so, has avoided the application of the carbon tax pursuant to the Federal
Backstop in respect of fuels used by such facility.
U.S. Regulation
The U.S. Energy Independence and Security Act of 2007 precludes agencies of the U.S. federal government from procuring mobility-
related fuels from non-conventional petroleum sources that have lifecycle GHG emissions greater than equivalent conventional fuel.
This may have implications for the Company’s marketing of some heavy oil and oil sands production in the U.S., but the impact cannot
be determined at this time.
USEPA issued an Endangerment Finding in December 2009 providing that emissions of carbon dioxide, methane and other GHGs
present an endangerment to public health and the environment because emissions of such gases contribute to warming of the earth’s
atmosphere and other climatic changes. USEPA’s findings permit the agency to adopt and implement regulations restricting emissions
of GHGs under existing provisions of the federal Clean Air Act, including rules which regulate emissions of GHGs. In response to its
endangerment finding, the USEPA adopted two sets of rules regarding possible future regulation of GHG emissions under the Clean
Air Act. The motor vehicle rule, which became effective in January 2011, purports to limit emissions of GHGs from motor vehicles. The
USEPA adopted the stationary source rule (or the "tailoring rule") on May 13, 2010, and it also became effective January 2011.
The "tailoring rule" imposed requirements in two phases on U.S.’s largest emitters of GHGs. On June 23, 2014 the U.S. Supreme Court
invalidated a portion of the tailoring rule, however, it essentially held up the USEPA’s ability to regulate GHG emissions for certain
facilities including those facilities required to obtain a Prevention of Significant Deterioration permit due to the emissions of other
regulated pollutants. The U.S. Supreme Court held that stationary sources could not become subject to Prevention of Significant
Deterioration or Title V permitting solely by reason of their GHG emissions; however, USEPA may require installation of best available
control technology for GHG emissions at sources otherwise subject to the Prevention of Significant Deterioration and Title V programs.
Additionally, in September 2009, the USEPA issued a final rule requiring the reporting of GHG emissions from specified large GHG
emission sources in the U.S., including NGLs fractionators and local natural gas/distribution companies, beginning in 2011 for
emissions occurring in 2010. In November 2010, the USEPA expanded its existing GHG reporting rule to include onshore and offshore
oil and natural gas production and onshore processing, transmission, storage and distribution facilities, which may include certain of
the Company’s facilities, beginning in 2012 for emissions occurring in 2011. In addition, the USEPA has continued to adopt GHG
regulations for other industries, such as the June 2019 Affordable Clean Energy Rule, establishing emission guidelines for states to use
when developing plans to limit carbon dioxide at coal-fired electric generating units. On November 15, 2021 EPA published a proposed
a rule that would sharply reduce methane and other air pollution from both new and existing sources in the oil and natural gas
industry. The proposal expands and strengthens emissions reduction requirements for new, modified and reconstructed oil and
natural gas sources, and would require states to reduce methane emissions from hundreds of thousands of existing sources
nationwide for the first time. On December 13, 2021 EPA extended the comment period for the proposed rule to January 31, 2022.
The U.S.’s withdrawal from the Paris Agreement became effective in November 2020; however, the U.S. rejoined the agreement on
January 20, 2021, effective February 2021. The USEPA is working on regulations to limit GHG emissions within its existing statutory
authority under the Clean Air Act. In addition, more than one-third of the states already have begun implementing legal measures to
reduce emissions of GHGs.
On January 28, 2020, House Energy & Commerce Committee members released draft text of the Climate Leadership and
Environmental Action for our Nation’s Future Act, proposing a new climate plan to ensure the United States achieves net-zero GHG
pollution no later than 2050. The Climate Leadership and Environmental Action for our Nation’s Future Act proposes sector-specific
and economy-wide solutions to address the "climate crisis." Feedback and recommendations from all stakeholders was requested. It
was intended for the Climate Leadership and Environmental Action for our Nation’s Future Act to be refined via hearings and
stakeholder meetings throughout 2020. On January 27, 2021 President Biden issued Executive Orders promising to take aggressive
action on climate change. Among other things, such Executive Orders reaffirmed the commitment of the United States to addressing
climate change, including the entering into of international agreements on climate change, and enhanced global action on climate
change and President Biden adopting a “Whole of Government Approach to the Climate Crisis” approach appointing former governors
and mayors to his cabinet and embracing a partnership with state and local governments as well as the private sector to advance
climate solutions. On February 9, 2021 the House Committee on Energy & Commerce hosted a subcommittee hearing "Back in Action:
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Restoring Federal Climate Leadership" highlighting the Biden Administration’s Executive Orders relating to climate change initiatives
and soliciting testimony from industry leaders. On March 2, 2021, the House Energy and Commerce Committee introduced H.R.1512
(117), the “Climate Leadership and Environmental Action for our Nation’s Future Act” or the “CLEAN Future Act.” The committee first
unveiled the bill as a discussion draft in January 2020 and after over a year of hearings and stakeholder feedback, the legislation now
boasts several new provisions and modifications. The CLEAN Future Act has far-reaching implications for many sectors of the economy.
The bill sets a national climate target of net-zero greenhouse-gas (GHG) emissions by 2050. The bill includes a mix of incentives for
renewable energy and provisions increasing regulation of non-renewable energy and other emitting industries. It aims to achieve GHG
and other emissions reductions through provisions impacting the power sector, the building sector, the automotive sector, ports,
manufacturing, oil and gas extraction, waste-management and recycling. The CLEAN Future Act was referred to subcommittee on
March 3, 2021.
Congress enacted the bipartisan Infrastructure Investment and Jobs Act (or Bipartisan Infrastructure Law), which includes provisions
to enhance the electricity grid, build electric vehicle charging infrastructure, support electric school buses, and develop carbon dioxide
capture and sequestration technology. More than $500 billion dollars’ worth of clean energy tax credits, electric vehicle rebates and
other climate-smart investment are pending in the Build Back Better Act (BBBA), which cleared the House in November but is stalled
in the Senate and is now in the process of being “scaled down”, however, the bills provisions related to combatting climate change
among others will remain. The BBBA included a $3.5 billion program to encourage home electrification, including rebates for heat
pump water and space heaters that would encourage, but not require, a shift away from natural gas appliances.
In April 2021 President Biden set a new national goal to reduce emissions by 50-52% from 2005 levels by 2030 and formalized that in
an updated U.S. nationally-determined contribution (NDC, or climate plan) under the Paris Agreement. President Biden set a goal for
50% of new passenger vehicles sold in 2030 to produce zero emissions and signed an executive order directing federal agencies to
purchase 100% zero-emission light-duty vehicles by 2027. The EPA issued a final rule to significantly reduce greenhouse gas emissions
from model year 2023-2026 passenger vehicles and will begin work on standards for model year 2027 and later vehicles.
EPA has issued regulations to implement the phase down of hydrofluorocarbons as directed by the American Innovation and
Manufacturing Act, which was enacted as part of the fiscal year 2021 appropriations bill. The EPA has also proposed regulations to
reduce methane emissions from the oil and gas industry and President Biden helped launch a global methane pledge at the Glasgow
Climate Summit, or COP26, under which more than 100 countries have committed to cut their total methane emissions at least 30%
by 2030.
A number of U.S. states have formed regional partnerships to regulate emissions of GHGs such as the Transportation and Climate
Initiative enacted on December 17, 2019 and involving thirteen jurisdictions in the Northwest and Mid-Atlantic United States. States
and local governments continue to enact rules and regulations to reduce use and increase regulation of the oil and gas industry. In
2019, Berkeley, California became the first city to ban the use of natural gas in new buildings. Since then, dozens of urban centers
have followed suit, including major cities such as San Jose and New York. At the state level, California’s most recent building code
update requires new buildings to be wired for all-electric operation and uses heat pumps as the energy efficiency benchmark for
heating but does not ban new gas hookups. In her 2022 State of the State policy book, New York Governor Kathy Hochul proposed
that all new buildings be required to have zero on-site emissions no later than 2027.
In general, climate change legislation imposes, among other things, costs, restrictions, liabilities and obligations in connection with
the handling, use, storage and transportation of crude oil and petroleum products. The complexities of changes in environmental
regulations make it difficult to predict the potential future impact to the Company. However, compliance with climate change
legislation requires significant expenditures and it is likely that such legislation will materially impact the nature of oil and gas
operations, including those carried out by the Company and its customers. In addition, changes to such legislation or future legislation
may apply to more facilities over time and result in further regulatory requirements that could affect the Company’s business, or the
business of its customers. At present, it is not possible to predict the impact such legislation will, or new legislation or regulatory
programs could, have on the Company’s business, operations and/or finances. Future capital expenditures and operating expenses
could continue to increase as a result of, among other things, developments in the Company’s business, operations, plans and
objectives and changes to existing, or implementation of new and more stringent, climate change legislation. Regulatory focus on
other air emissions criteria such as VOC emissions, particulate matter and ground level ozone may also impact the oil and gas sector,
particularly the midstream component. Failure to comply with climate change legislation may result in, among other things, the
imposition of fines, penalties, environmental protection orders, suspension of operations, and could adversely affect the Company’s
reputation. The costs of complying with climate change legislation are not presently expected to have a material adverse effect on
the Company’s operations or financial condition, however, the implementation of new climate change legislation, the modification of
existing climate change legislation, changes in climate change policy that seek to promote adaptation to climate change which affect
the energy industry generally could reduce demand for crude oil and petroleum products and materially impact the Company’s current
or future business (including, without limitation, increasing costs of compliance) and could have an adverse effect on the Company’s
operations, margins, profitability and results.
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Risks Related to Climate Change Legislation
The extent and magnitude of any adverse impacts of current or additional programs or regulations beyond reasonably foreseeable
requirements cannot be reliably or accurately estimated at this time, in part because certain specific legislative and regulatory
requirements have not been finalized and uncertainty exists with respect to the additional measures being considered and the time
frames for compliance. Consequently, no assurances can be given that the effect of future climate change legislation will not be
significant to the Company. There is also risk that the Company could face claims initiated by third parties relating to climate change
or climate change legislation. These claims could, among other things, result in litigation targeted against the Company and the oil
and gas industry generally, which may, in turn, have an adverse effect on the Company's operations, margins, profitability and results.
Emerging Climate Change Regulations
Compliance with climate change legislation generally requires significant expenditures and could potentially impact the nature of oil
and gas operations, including those of our customers. The increased costs of compliance associated with emerging regulations may
also have a direct material impact on the Company's business and financial position. As regulations, including the emerging regulations
identified below, change, they may affect the future demand of oil and refined products and, as a result, the ultimate impact and
lasting effects on the Company’s business, operations and financial condition, and on the energy industry as a whole, are highly
uncertain.
Increasing Minimum Price on Carbon
On July 12, 2021, the federal government formally submitted Canada’s enhanced Nationally Determined Contribution ("NDC") to the
United Nations, committing Canada to cut its GHG emissions by 40-45 percent below 2005 levels by 2030. Canada’s NDC submission
outlines a series of investments, regulations and measures that the country is taking in pursuit of its ambitious target. It includes input
from provincial, territorial and Indigenous partners. The federal government additionally confirmed that the minimum price on carbon
pollution will increase by $15 per tonne each year starting in 2023 through to 2030, and will be $170 per tonne in 2030. The Federal
Backstop will be updated to ensure all provincial and territorial pricing systems are comparable in terms of stringency and
effectiveness. Provinces and territories will continue to have the flexibility to implement a system that makes sense for their
circumstances as long as they align with the benchmark.
Clean Fuel Regulations
On December 19, 2020, the Government of Canada announced the draft of the Clean Fuel Regulations, which is expected to come
into force in December 2022. The aim of this regulation is (i) to lower the GHG emissions from various liquid fossil fuels by requiring
producers or importers of gasoline, diesel, kerosene, and light and heavy fuel oils ("primary suppliers") to lower the carbon intensity
of such fuels; and (ii) provide a framework for primary suppliers and those who voluntarily participate in the compliance credit market
to create and trade credits to the extent they avoid lifecycle emissions of such fuels. Notwithstanding that compliance requirements
only apply to liquid fuels, the Clean Fuel Regulations provide a framework for credit creation applicable to gaseous fuels as well. The
regulation sets a baseline carbon intensity for each type of liquid fossil fuel, against which the primary suppliers must make annual
carbon intensity reductions. Starting in 2022, each primary supplier must reduce the carbon intensity by the prescribed amount.
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 and environmental
conditions 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 among other things may impact the Company’s
ability 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.
As of January 2022, there are annual spend requirements for decommissioning, abandonment and reclamation of inactive sites in
Alberta which require an amount specified by the regulator to be spent on decommissioning, abandonment and reclamation. Similar
requirements will be enacted in Saskatchewan in 2023, which will require the Company to ensure that inactive sites are actively being
addressed and, based on the regulator's assessment of the liability associated with any inactive sites, result in mandatory annual
spend requirements. These spend requirements are not currently material; however, any increases thereto, may impact the
Company's ability to execute its business plan and service its debt obligations, which may adversely affect the Company's business,
financial condition and reputation.
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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 revenue, 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 Canada-United States-Mexico 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 and Health and Safety Regulations
Each of the Company’s segments are subject to the risk of incurring substantial costs and liabilities under environmental and health
and safety laws and regulations. These costs and liabilities arise under increasingly stringent environmental and health and safety
laws, including regulations and governmental enforcement policies and legislation, and as a result of third-party claims for damages
to property or persons arising from the Company’s operations. Environmental laws and regulations impose, among other things,
restrictions, liabilities and obligations in connection with the generation, handling, storage, transportation, treatment and disposal of
hazardous substances and waste and in connection with spills, releases and emissions of various substances into the environment.
Environmental laws and regulations also require that pipelines, facilities and other properties associated with the Company’s
operations be constructed, operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities.
Health and safety laws and regulations impose, among other things, requirements designed to ensure the protection of workers and
to limit the exposure of persons to certain hazardous substances. In addition, certain types of projects may be required to submit and
obtain approval of environmental impact assessments, to obtain and maintain environmental permits and approvals and to
implement mitigative measures prior to the implementation of such projects.
Failure to comply with environmental and health and safety laws and regulations, including related permits and approvals, may result
in assessment of administrative, civil and criminal penalties, the issuance of regulatory or judicial orders, the imposition of remedial
obligations such as clean-up and site restoration requirements, the payment of deposits, liens, the amendment, suspension or
revocation of permits and approvals and the potential issuance of injunctions to limit or cease operations. If the Company were unable
to recover these costs through increased revenue, the Company’s ability to meet its financial obligations could be adversely affected.
Some of the Company’s facilities have been used for many years to transport, distribute or store petroleum products. Over time the
Company’s operations, or operations by the Company’s predecessors or third parties not under the Company’s control, may have
resulted in the disposal or release of hydrocarbons or wastes at or from these properties upon which the facilities are situated along
or over pipeline rights-of-way. In addition, some of the Company’s facilities are located on or near current or former refining and
terminal sites, and there is a risk that contamination is present on those sites or may migrate onto the Company's sites from
neighbouring sites. The Company may be subject to strict joint and several liability under a number of these environmental laws and
regulations for such disposal and releases of hydrocarbons or wastes or the existence of contamination, even in circumstances where
31
such activities or conditions were caused by third parties not under the Company’s control or were otherwise lawful at the time they
occurred.
Further, the transportation of hazardous materials and/or other substances in the Company’s pipelines or by truck or rail may result
in environmental damage, including accidental releases that may cause death or injuries to humans, damage to third parties and
natural resources, and/or result in federal and/or provincial and state civil and/or criminal penalties that could be material to the
Company’s results of operations and cash flow.
The Company engages in operations which handle hazardous materials. As a result of these and other activities, the Company is
subject to a variety of federal, provincial, state, local and foreign laws and regulations relating to the generation, transport, use
handling, storage, treatment and exposure to and disposal of these materials, including record keeping, reporting and registration
requirements. The Company has incurred and expects to continue to incur expenditures to maintain compliance with environmental
laws and regulations. Moreover, some or all of the environmental laws and regulations to which the Company is subject could become
more stringent or be more stringently enforced in the future. Failure to comply with applicable environmental laws and regulations
and permit requirements could result in civil or criminal fines or penalties or enforcement actions, including regulatory or judicial
orders enjoining or curtailing operations or requiring corrective measures or remedial actions.
Certain environmental laws, including the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA") and
comparable state laws in the U.S., impose joint and several liability, without regard to fault or legality of the operations, on certain
categories of persons, including current and prior owners or operators of a facility where there is a release or threatened release of
hazardous substances, transporters of hazardous substances and entities that arranged for disposal of the hazardous substances at
the site. Under CERCLA, these "responsible persons" may be held jointly and severally liable for the costs of cleaning up the hazardous
substances, as well as for damages to natural resources and for the costs of certain health studies, relocation expenses and other
response costs.
CERCLA generally exempts "petroleum" from the definition of hazardous substance; however, in the course of the Company’s
operations, the Company has accepted, handled, transported and/or generated materials that are considered "hazardous
substances." Further, hazardous substances or hazardous wastes may have been released at properties owned or leased by the
Company now or in the past, or at other locations where these substances or wastes were taken for treatment or disposal. Given the
nature of the Company’s previously divested environmental services business, it has incurred liabilities under CERCLA or other
environmental cleanup laws, at its current or former facilities, adjacent or nearby third-party facilities, or offsite disposal locations.
There can be no assurance that the costs associated with future cleanup activities that the Company may be required to conduct or
finance will not be material. Additionally, the Company may become liable to third parties for damages, including personal injury and
property damage, resulting from the disposal or release of hazardous substances into the environment.
Failure to comply with environmental regulations could have an adverse impact on the Company’s reputation. There is also risk that
the Company could face litigation initiated by third parties relating to climate change or other environmental regulations.
Federal Review of Environmental and Regulatory Processes
In 2016, the Government of Canada commenced a review of federal environmental and regulatory processes under various acts and
in February 2018, the Government of Canada proposed the enactment of the Impact Assessment Act and the Canadian Energy
Regulator Act and certain amendments to the Fisheries Act and the Navigation Protection Act.
The Impact Assessment Act came into force in August 2019 and replaced the Canadian Environmental Assessment Act, 2012. It
established the Impact Assessment Agency of Canada, which leads and coordinates impact assessments for all designated projects.
The Impact Assessment Act applies to designated projects listed in the Physical Activities Regulations and physical activities designated
by the Minister of Environment and Climate Change Canada on an ad hoc basis. The legislation expanded the assessment
considerations beyond the environment to expressly include health, economic, social and gender impacts, as well as considerations
related to sustainability and Canada’s climate change commitments. Increased environmental assessment obligations may create risk
of increased costs and project delays and may limit the Company's ability to obtain or renew permits efficiently. The Canadian Energy
Regulator Act also came into force in August 2019 and replaced the National Energy Board with the Canada Energy Regulator and
modified the regulator’s role in federal impact assessments.
The amendments to the Fisheries Act restored the previous prohibition against harmful alteration, disruption or destruction of fish
habitat and the prohibition against causing the death of fish by means other than fishing. The amendments also introduced several
new requirements to expand the scope of protection and role of Indigenous groups and interests. The prohibitions against the death
of fish, and the harmful alteration, disruption or destruction of fish habitat may result in increased permitting requirements where
the Company’s operations potentially impact fish or fish habitat. These amendments came into force in August 2019.
The changes to the Navigation Protection Act, including its renaming to the Canadian Navigable Waters Act, expanded its scope to all
32
navigable waters, created greater oversight for navigable waters and, consistent with the Fisheries Act, introduced requirements to
expand the scope of protection and the role of Indigenous groups and interests. The broader application of the Canadian Navigable
Waters Act may result in increased permitting requirements where the Company’s operations potentially impact navigable waters.
These amendments came into force in August 2019.
Capital Project Delivery and Success
The Company has had, and will have organic growth projects that require the expenditure of significant amounts of capital. Many of
these projects involve numerous regulatory, environmental, commercial, short and long-term weather-related, political and legal
uncertainties that will be beyond the Company’s control. As these projects are undertaken, required regulatory and other approvals
may not be obtained, may be delayed or may be obtained with conditions that materially alter the expected return associated with
the underlying projects. Moreover, the Company will incur financing costs during the planning and construction phases of its growth
projects, but the operating cash flow the Company expects these projects to generate will not materialize until after the projects are
completed. These projects may be completed behind schedule or in excess of budgeted cost, including a result of inflation or supply
chain disruptions. For example, the Company must compete with other companies for the materials and construction services
required to complete these projects, and competition for these materials or services could result in significant delays and/or cost
overruns. Any such cost overruns, or unanticipated delays in the completion or commercial development of these projects, could
reduce the Company’s liquidity. The Company may construct facilities or other assets in anticipation of market demand that dissipates
during the intervening period between project conception and delivery to market or never materializes. As a result of these
uncertainties, the anticipated benefits associated with the Company’s capital projects may not be lower than expected.
Inflation
The Company does not believe that inflation has had a material effect on its business, financial condition or results of operations to
date; however, if the Company's development, operation or labour costs were to become subject to significant inflationary
pressures, we may not be able to fully offset such higher costs through corresponding increases in commodity prices. The
Company's inability or failure to do so could harm our business, financial condition and results of operations.
Reputation
The Company 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
the Company’s 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.
With increasing public focus on climate change and GHG emissions, the reputation of oil and gas companies generally may become
increasingly unfavourable. There are added social pressures which demand governments and companies work to mitigate the risks
associated with climate change, decrease GHG emissions and move towards decarbonization. Specifically, there is a reputational risk
in connection with the Company's ability to meet increasing climate reporting and emission reduction expectations from our key
stakeholders. While our reputation may be generally negatively impacted in connection with the stigmatization of the energy industry,
the Company has been actively preparing and adapting to manage and respond to investors’ increasing expectations by proactively
setting voluntary GHG and emissions reduction targets, investing in energy efficiency and emissions reduction projects, integrating
ESG across the business and tying our borrowing costs and employee compensation to our ESG performance.
Negative impacts from a compromised reputation for any reason could include revenue loss, reduction in customer base and
diminution of share price.
Hazards and Operational Risks
The Company’s operations are subject to the many hazards inherent in the transportation, storage, processing, treating and
distribution of crude oil, NGLs and petroleum products, including:
adverse weather conditions or extreme events, explosions, fires and accidents, including road and rail accidents;
damage to the Company’s tanker trucks, pipelines, storage tanks, terminals and related equipment;
ruptures, leaks or releases of crude oil or petroleum products into the environment;
protests, demonstrations or blockades;
acts of terrorism or vandalism; and
33
other accident or hazards that may occur at or during transport to, or from, commercial or industrial sites.
If any of these events were to occur, the Company could suffer substantial losses because of the resulting impact on the Company’s
reputation, personal injury or loss of life, severe damage to and destruction of property, equipment, information technology systems,
related data and control systems, environmental damage, which may include polluting water, land or air, resulting in regulatory
enforcement or curtailment or suspension of the related operations. Mechanical malfunctions, faulty measurement or other errors
may also result in significant costs or lost revenue.
Regulatory Approvals
The Company’s operations require it to obtain approvals from various regulatory authorities and there are no guarantees that it will
be able to obtain all necessary licenses, permits and other approvals that may be required to conduct its business. In addition,
obtaining certain approvals from regulatory authorities can involve, among other things, stakeholder and Indigenous consultation,
environmental impact assessments and public hearings. Regulatory approvals obtained may be subject to the satisfaction of certain
conditions, including, but not limited to: security deposit obligations, ongoing regulatory oversight of projects, mitigating or avoiding
project impacts, habitat assessments and other commitments or obligations. Failure to obtain applicable regulatory approvals or
satisfy any of the conditions thereto on a timely basis on satisfactory terms could result in delays, abandonment or restructuring of
projects and increased costs.
Jointly Owned Facilities
Certain of the Company’s facilities are jointly owned with third parties. Approvals must be obtained from such joint owners for
proposals to make capital expenditures regarding such facilities. These approvals typically require that a capital expenditure proposal
be approved by the owners holding a specified percentage of the ownership interests in the relevant facility. It may not be possible
for the Company to obtain the required levels of approval from co-owners of facilities for future proposals for capital expenditures to
expand or improve its jointly owned facilities. In addition, agreements for joint ownership often contain restrictions on transfer of an
interest in a facility. The most frequent restrictions require a transferor who is proposing to transfer an interest to offer such interest
to the other holders of interests in the facility prior to completing the transfer. Such provisions may restrict the Company’s ability to
transfer its interests in facilities or to acquire partners’ interests in facilities and may also restrict the Company’s ability to maximize
the value of a sale of its interest. Further, should a joint owner become insolvent, the Company may be directed by regulators to
assume the joint owner's obligations and may face operational challenges during any insolvency proceedings resulting in additional
costs.
As part of the Company’s effort to minimize these risks, the Company maintains communication with its co-owners through
participation in operating committees and formal decision-making processes. The Company also utilizes its knowledge of industry
activity and relationships with other owners to mitigate the risk of uncooperative behavior. However, there is no guarantee that the
Company will be able to proceed with its plans for any facilities which are jointly owned.
Capital Markets and Availability of Future Financing
The future development of the Company’s business may be dependent on its ability to obtain additional capital including, but not
limited to, debt and equity financing. Disruptions in international credit markets and other financial systems and a deterioration of
global economic conditions, may cause significant volatility in commodity prices and interest rates at which the Company is able to
borrow funds for capital programs. Uncertainty in the global economic situation, including ESG factors, could mean that the Company,
along with other oil and gas entities, may face restricted access to capital and increased borrowing costs. Specifically, changing
investor priorities and trends, including as a result of climate change, ESG initiatives, the adoption of decarbonization policies and the
general stigmatization of the oil and gas industry may limit the Company's ability to attract and access capital. This could have an
adverse effect on the Company, as future capital expenditures will be financed out of cash generated from operations and borrowings,
and the Company’s ability to borrow is dependent on, among other factors, the overall state of the capital markets and investor
appetite for investments in the energy industry generally and the Company’s securities. The Company's ability to obtain additional
capital is dependent on, among other things, investor interest in investments in the energy industry in general and investor interest
in its securities. See also “Climate Change and ESG Targets and Commitments”.
To the extent that external sources of capital become limited or unavailable, or available on onerous terms, the Company’s ability to
make capital investments and maintain existing properties may be impaired, and the business, its financial condition, results of
operations and cash flow may be materially adversely affected as a result.
Insurance
The Company currently maintains customary insurance of the types and amounts consistent with prudent industry practice. However,
the Company is not fully insured against all risks incidental to the Company’s business. The Company is not obliged to maintain any
such insurance if it is not available on commercially reasonable terms. There can be no guarantee that such insurance coverage will
34
be available in the future on commercially reasonable terms or at commercially reasonable rates or that the amounts for which the
Company is insured, or the proceeds of such insurance, will compensate the Company fully for the Company’s losses. Insurance
providers are adjusting to the risks that climate change poses and as a result, our ability to secure necessary or prudent insurance
coverage may also be adversely affected in the event that our insurers adopt more restrictive ESG or decarbonization policies. As a
result of these policies, premiums and deductibles for some or all of our insurance policies could increase substantially. In some
instances, coverage may be reduced or become unavailable. As a result, we may not be able to renew our existing policies, or procure
other desirable insurance coverage, either on commercially reasonable terms, or at all.
In addition, the insurance coverage obtained with respect to the Company’s business and facilities will be subject to limits and
exclusions or limitations on coverage that are considered by management to be reasonable, given the cost of procuring insurance and
current operating conditions. There can be no assurance that the insurance proceeds received by the Company in respect of a claim
will be sufficient in any particular situation to fully compensate the Company for losses and liabilities suffered. If a significant accident
or event occurs that is not fully insured, it could adversely affect the Company’s results of operations, financial position or cash flows.
Contract Renegotiation
Some of the Company’s contract-based revenue are generated under contracts with terms which allow the customer to reduce or
suspend performance under the contract in specified circumstances, such as the occurrence of a catastrophic event to the Company
or the customer’s operations. The occurrence of an event which results in a material reduction or suspension of the Company’s
customer’s performance could reduce the Company’s profitability.
Some of the Company’s contracts with third-party customers for services have terms of one year or less. As these contracts expire,
they must be extended and renegotiated or replaced. The Company may not be able to extend, renegotiate or replace these contracts
when they expire, and the terms of any renegotiated contracts may not be as favorable as the contracts they replace. The Company
faces intense competition in its gathering, transportation, terminalling and storage activities. Other providers of crude oil gathering,
transportation, terminalling and storage services that are able to supply the Company’s customers with those services at a lower price
could reduce the Company’s ability to compete in this industry. Additionally, the Company may incur substantial costs if modifications
to the Company’s terminals are required in order to attract substitute customers or provide alternative services. If the Company
cannot successfully renew significant contracts, or if the Company must renew them on less favorable terms, or if the Company incurs
substantial costs in modifying its terminals, the Company’s revenue from these arrangements could decline.
FORWARD-LOOKING INFORMATION AND ADVISORY STATEMENT
Certain statements and information included or referred to in this MD&A 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”, “continue”, “target”, “must”, “commit”, “estimate”, “expect”, “extend”, “remain”, “future”, “intend”, “may”, “can”, “will”,
“project”, “should”, “could”, “would”, “believe”, “predict”, “forecast”, “long-term”, “potential”, “possibility” and similar expressions of
future outcomes or statements regarding an outlook are intended to identify forward-looking information. Forward-looking
information, included or referred to in this MD&A includes, but is not limited to statements with respect to:
the effect of the COVID-19 (including its variants) pandemic and governmental responses thereto on the Company’s business,
operations, financial condition and access to financing;
achieving the targets including but not limited to growth capital expenditure and allocation thereof;
the addition or disposition of assets and changes in the services to be offered by the Company;
the Company’s projections relating to target segment profit, distributable cash flow, distributable cash flow per share, total
cash flow;
leverage ratio, dividend payout ratios and net debt to adjusted EBITDA ratio;
the Company's investment in new equipment, technology, facilities and personnel;
the Company's growth strategy to expand in existing and new markets including the anticipated benefits from the Company’s
basin strategy;
long-term contracts and the terms, counterparties and impacts thereof;
the evaluation of the Company’s strategic plan and the key attributes of the Company’s business strategy and strengths;
the Company’s ability to execute its current business strategy, related milestones and ability to meet its ESG targets and the
associated impacts to the Company’s reputation and ability to attract capital;
the effect of the Company’s credit rating and relative performance to certain ESG targets on its borrowing costs;
the Company’s ability to position itself as a ESG and sustainability leader and integrate the principles of ESG and sustainability
into the evaluation and pursuit of the Company’s business strategy and commercial opportunities;
35
the Company’s ESG targets, including its goal of achieving Net Zero GHG emissions by 2050 and expectations and plans related
to its Net Zero by 2050 target pathway and its effectiveness;
the role of sustainable development in future outcomes related to the economy, the Company's climate goals and value
generation for stakeholders;
the availability of sufficient capital and liquidity for planned growth;
uncertainty and volatility relating to crude oil prices and price differentials between crude oil streams and blending agents,
and the effect thereof on the Company’s financial condition;
the anticipated benefits and functionality of the DRU;
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 revenue and activities;
the Company's ability to service its debt and to pay down and retire indebtedness;
the sufficiency and sources of funding to service the Company's debt, meet its operating obligations, fund capital expenditures
and pay dividends;
the appropriateness of the Company's approach to its capital structure;
evaluations by credit rating agencies and the results and effects thereof;
changes to the Company's capital structure, the reasons therefor and the results thereof;
the adequacy of the Company's provisions for restoration, retirement and environmental costs and legal claims and the
materiality thereof;
the Company's plans for additional strategic acquisitions, capital expenditures or other similar transactions, including the
costs, timing and completion thereof;
the expected cost relative to budget and in-service dates for new storage capacity and new projects 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 Company’s projections with respect to the adoption and implementation of new accounting standards and policies, and
their impact on the Company’s financial statements;
the sources of the Company’s cash flows;
the Company’s normal course issuer bid;
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 and estimates have been made regarding, among
other things:
•
•
•
•
•
•
•
•
•
•
•
the impact of the COVID-19 (including its variants) pandemic, including government responses related thereto on demand for
crude oil and petroleum products and the Company’s operations generally;
general economic and industry conditions;
future growth in world-wide demand for crude oil and petroleum products;
commodity prices;
no material defaults by the counterparties to agreements with the Company;
the Company's ability to obtain qualified and diverse personnel and equipment in a timely and cost-efficient manner or at all;
the regulatory framework governing taxes and environmental matters in the jurisdictions in which the Company conducts and
will conduct its business;
the energy transition that is underway as the world shifts towards a lower carbon economy and a maintained industry focus
on ESG and the impact thereof on the Company;
the development and performance of technology and new energy efficient products, services and programs including but not
limited to the use of zero-emission and renewable fuels, carbon capture and storage, electrification of equipment powered by
zero-emission energy sources and utilization and availability of carbon offsets and carbon price outlook;
the Company's relationships with the communities in which we operate;
climate-related estimates and scenarios and the accuracy thereof, including the cost of compliance with climate change
legislation and the impact thereof on the Company;
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•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
•
the impact of emerging regulations on the nature of oil and gas operations, expenditures in the oil and gas industry, and
demand for our products and services;
changes in credit ratings applicable to the Company;
the Company's ability to achieve its Sustainability and ESG targets, the timing thereof and the impact thereof on the Company;
the Company's future investments in new technologies and innovation and the return thereon;
operating and borrowing costs, including those related to the Company's Sustainability and ESG programs;
future capital expenditures to be made by the Company, including its ability to place assets into service as currently planned
and scheduled;
the Company's ability to obtain financing for its capital programs on acceptable terms;
the Company’s ability to maintain a strong balance sheet and financial position;
the Company's future debt levels;
the impact of increasing competition on the Company;
the impact of changes in government policies on the Company;
the ability of the Company and, as applicable, its partner(s), to construct and place assets into service and the associated costs
of such projects;
the Company’s ability to generate sufficient cash flow to meet the Company’s current and future obligations;
the Company’s dividend policy;
product supply and demand;
demand for the services offered by the Company;
the Company’s ability to re-negotiate contracts for its services on terms favorable to the Company;
the impact of future changes in accounting policies on the Company’s consolidated financial statements; and
the Company’s ability to successfully implement the plans and programs disclosed in the Company’s strategy.
In addition, this MD&A may contain forward-looking information attributed to third party industry sources. 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 "Risk Factors" included in this MD&A. Readers should also refer to “Forward-Looking
Information” and “Risk Factors” in the AIF and to the risk factors described in other documents Gibson files from time to time with
securities regulatory authorities, available on the Company’s profile at www.sedar.com and on the Company's website at
www.gibsonenergy.com. No assurance can be given that these expectations will prove to be correct. As such, forward-looking
information included or referred to in this MD&A and the Company’s other filings with Canadian securities regulatory authorities should
not be unduly relied upon. These statements speak only as of the date of this MD&A. Information on, or connected to, the Company’s
website www.gibsonenergy.com does not form part of this MD&A. The forward-looking information included or referred to in this
MD&A are expressly qualified by this cautionary statement and are made as of the date of this MD&A. The Company does not
undertake any obligation to publicly update or revise any forward-looking information, whether as a result of new information, future
events or otherwise except as required by applicable securities laws.
The forward-looking information included or referred to in this MD&A are expressly qualified by this cautionary statement.
Advisory Statement
Scope 1 emissions are direct emissions from facilities owned and operated by Gibson.
Scope 2 emissions are indirect emissions from the generation of purchased energy for Gibson’s owned and operated facilities.
Scope 3 emissions are indirect emissions not included in Scope 1 or Scope 2 that Gibson indirectly impacts in its value chain.
All references in this MD&A to Net Zero include Scope 1 and Scope 2 emissions only and are only inclusive of the equity portion of
facilities Gibson owns and operates.
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TERMS AND ABBREVIATIONS
AIF: the Company’s Annual Information Form for the year ended December 31, 2021
barrel: One barrel of petroleum, each barrel representing 34.972 Imperial gallons or 42 U.S. gallons
the Board: Gibson’s Board of Directors
COVID-19: Disease caused by the novel coronavirus that was first identified in December 2019 and subsequent variants
Canadian Crude Marketing: The Company’s business which markets crude oil and various other products in Canada
Crude Marketing: The aggregated Canadian Crude Marketing and U.S. Crude Marketing business
DBRS Morningstar: Collectively the companies of DBRS Limited, DBRS Inc., DBRS Ratings Limited and DBRS Ratings GmbH
DC&P: disclosure controls and procedures as defined in National instrument 52-109 Certification of disclosure in Issuers’ Annual and
Interim Filings
DRU: Diluent Recovery Unit, a facility that separates diluent from heavier petroleum stock, owned by the Company’s equity accounted
for investee Hardisty Energy Terminal LP
ESG: Environmental, Social, Governance
GAAP: International Financial Reporting Standards as set out in the Handbook of the Canadian Institute of Chartered Professional
Accountants and as issued by the International Accounting Standards Board, also referred to as IFRS
Hardisty Unit Train Facility or HURC Facility: A unit train facility at Hardisty, Alberta, jointly developed with USD Group, that includes
an exclusive five-kilometer pipeline connection from the Hardisty Terminal
HET: Hardisty Energy Terminal Limited Partnership. HET is jointly owned by US Development Group, LLC (through a wholly-owned
affiliate, collectively “USD”) and the Company, with each party owning a 50% interest
ICFR: Internal Controls over Financial Reporting as defined in National instrument 52-109 Certification of disclosure in Issuers’ Annual
and Interim Filings
IFRS: International Financial Reporting Standards, also referred to as GAAP
L3R: Enbridge Line 3 Replacement Project
MD&A: Management Discussion and Analysis
Moose Jaw Facility: Gibson’s heavy crude oil processing facility located at Moose Jaw, Saskatchewan, that produces asphaltic and
lighter distillate products that are generally sold into specialized markets
NGL: Natural Gas Liquids, comprised of ethane, propane, butane and natural gasoline.
NI 52-112: National instrument 52-112 – Non-GAAP and Other Financial Measures Disclosure
NI 52-109: National instrument 52-109 – Certification of Disclosure in Issuer’s Annual and Interim Filings
PSU: performance share units, convertible into common shares in the Company when various performance targets are achieved.
Moose Jaw Refined Products: The Company’s business which markets the outputs of the Moose Jaw Facility
Revolving Credit Facility: The Company’s $750 million sustainability linked unsecured revolving credit facility with a maturity date in
April 2026
Shareholders: The holders of issued and outstanding common shares from time to time
TMX: Government of Canada’s Trans Mountain Pipeline Expansion
TSX: Toronto Stock Exchange
U.S.: United States of America
U.S Crude Marketing: The Company’s business which markets crude oil and various other products in the U.S.
USD Group: US Development Group, LLC.
WCSB: Western Canadian Sedimentary Basin
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Independent auditor’s report
To the Shareholders of Gibson Energy Inc.
Our opinion
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of Gibson Energy Inc. and its subsidiaries (together, the Company) as at
December 31, 2021 and 2020, and its financial performance and its cash flows for the years then ended in
accordance with International Financial Reporting Standards as issued by the International Accounting
Standards Board (IFRS).
What we have audited
The Company’s consolidated financial statements comprise:
the consolidated balance sheets as at December 31, 2021 and 2020;
the consolidated statements of operations for the years then ended;
the consolidated statements of comprehensive income for the years then ended;
the consolidated statements of changes in equity for the years then ended;
the consolidated statements of cash flows for the years then ended; and
the notes to the consolidated financial statements, which include significant accounting policies and
other explanatory information.
Basis for opinion
We conducted our audit in accordance with Canadian generally accepted auditing standards. Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of
the consolidated financial statements section of our report.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for
our opinion.
Independence
We are independent of the Company in accordance with the ethical requirements that are relevant to our
audit of the consolidated financial statements in Canada. We have fulfilled our other ethical responsibilities
in accordance with these requirements.
PricewaterhouseCoopers LLP
111-5th Avenue SW, Suite 3100, Calgary, Alberta, Canada T2P 5L3
T: +1 403 509 7500, F: +1 403 781 1825
“PwC” refers to PricewaterhouseCoopers LLP, an Ontario limited liability partnership.
Key audit matters
Key audit matters are those matters that, in our professional judgment, were of most significance in our
audit of the consolidated financial statements for the year ended December 31, 2021. These matters were
addressed in the context of our audit of the consolidated financial statements as a whole, and in forming
our opinion thereon, and we do not provide a separate opinion on these matters.
Key audit matter
How our audit addressed the key audit matter
Impairment assessment of goodwill
Our approach to addressing the matter involved the
following procedures, among others:
Refer to note 3 - Significant accounting policies
and note 12 - Goodwill to the consolidated financial
statements.
The Company had goodwill of $359.9 million as at
December 31, 2021. Management performs an
impairment assessment annually or more
frequently if events or circumstances indicate that
the carrying value may be impaired. An impairment
assessment is conducted over a group of assets
that generate independent cash inflows;
management has grouped these cash generating
units (CGUs) at the operating segment level for the
purpose of the goodwill impairment assessment.
An impairment loss is recognized if the carrying
amount of an operating segment to which the
goodwill relates exceeds its recoverable amount.
The recoverable amounts of the operating
segments were based on a fair value less cost of
disposal method using either a discounted cash
flow approach or an earnings multiple approach.
Key assumptions used in the discounted cash flow
approach included revenue growth rates, terminal
value, expected margins and discount rate. Key
assumptions used in the earnings multiple
approach were budgeted earnings before interest,
taxes, depreciation and amortization less corporate
expenses (EBITDA) and earnings multiples.
We considered this a key audit matter due to (i) the
significance of the goodwill balance and (ii) the
significant judgment made by management in
Tested the operating effectiveness of internal
controls related to the impairment assessment
of goodwill.
Evaluated how management determined the
recoverable amounts of the operating
segments, which included the following:
- Tested the appropriateness of the method
and approaches used and the
mathematical accuracy of the calculations.
- Tested the underlying data used by
management in the discounted cash flow
approach and the earnings multiple
approach.
- When an earnings multiple approach was
used, tested the reasonableness of the
assumptions used by management in
determining the budgeted EBITDA by
considering (i) the current and past
performance of the operating segments, (ii)
external market and industry data and (iii)
evidence obtained in other areas of the
audit.
- When a discounted cash flow approach
was used, tested the reasonableness of the
revenue growth rates and expected
margins by considering management’s
strategic plans approved by the Board,
industry growth rates and available third
party published economic data.
Key audit matter
How our audit addressed the key audit matter
determining the recoverable amounts of the
operating segments, including the use of key
assumptions. This has resulted in a high degree of
subjectivity and audit effort in performing the audit
procedures. Professionals with skill and knowledge
in the field of valuation assisted us in performing
our procedures.
Other information
- Professionals with specialized skill and
knowledge in the field of valuation assisted
in testing the reasonability of the earnings
multiples, discount rate and terminal value.
Management is responsible for the other information. The other information comprises the document titled
Management’s Discussion and Analysis and the information, other than the consolidated financial
statements and our auditor’s report thereon, included in the document titled 2021 Report to Shareholders,
Management’s Discussion and Analysis and Annual Financial Statements.
Our opinion on the consolidated financial statements does not cover the other information and we do not
express any form of assurance conclusion thereon.
In connection with our audit of the consolidated financial statements, our responsibility is to read the other
information identified above and, in doing so, consider whether the other information is materially
inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or
otherwise appears to be materially misstated.
If, based on the work we have performed, we conclude that there is a material misstatement of this other
information, we are required to report that fact. We have nothing to report in this regard.
Responsibilities of management and those charged with governance for the
consolidated financial statements
Management is responsible for the preparation and fair presentation of the consolidated financial
statements in accordance with IFRS, 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.
In preparing the consolidated financial statements, management is responsible for assessing the
Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going
concern and using the going concern basis of accounting unless management either intends to liquidate
the Company or to cease operations, or has no realistic alternative but to do so.
Those charged with governance are responsible for overseeing the Company’s financial reporting
process.
Auditor’s responsibilities for the audit of the consolidated financial statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as
a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s
report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a
guarantee that an audit conducted in accordance with Canadian generally accepted auditing standards
will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and
are considered material if, individually or in the aggregate, they could reasonably be expected to influence
the economic decisions of users taken on the basis of these consolidated financial statements.
As part of an audit in accordance with Canadian generally accepted auditing standards, we exercise
professional judgment and maintain professional skepticism throughout the audit. We also:
Identify and assess the risks of material misstatement of the consolidated financial statements,
whether due to fraud or error, design and perform audit procedures responsive to those risks, and
obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of
not detecting a material misstatement resulting from fraud is higher than for one resulting from error,
as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of
internal control.
Obtain an understanding of internal control relevant to the audit 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 Company’s internal control.
Evaluate the appropriateness of accounting policies used and the reasonableness of accounting
estimates and related disclosures made by management.
Conclude on the appropriateness of management’s use of the going concern basis of accounting and,
based on the audit evidence obtained, whether a material uncertainty exists related to events or
conditions that may cast significant doubt on the Company’s ability to continue as a going concern. If
we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report
to the related disclosures in the consolidated financial statements or, if such disclosures are
inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to
the date of our auditor’s report. However, future events or conditions may cause the Company to
cease to continue as a going concern.
Evaluate the overall presentation, structure and content of the consolidated financial statements,
including the disclosures, and whether the consolidated financial statements represent the underlying
transactions and events in a manner that achieves fair presentation.
Obtain sufficient appropriate audit evidence regarding the financial information of the entities or
business activities within the Company to express an opinion on the consolidated financial
statements. We are responsible for the direction, supervision and performance of the group audit. We
remain solely responsible for our audit opinion.
We communicate with those charged with governance regarding, among other matters, the planned scope
and timing of the audit and significant audit findings, including any significant deficiencies in internal
control that we identify during our audit.
We also provide those charged with governance with a statement that we have complied with relevant
ethical requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with those charged with governance, we determine those matters that
were of most significance in the audit of the consolidated financial statements of the current period and
are therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we
determine that a matter should not be communicated in our report because the adverse consequences of
doing so would reasonably be expected to outweigh the public interest benefits of such communication.
The engagement partner on the audit resulting in this independent auditor’s report is Reynold Tetzlaff.
/s/PricewaterhouseCoopers LLP
Chartered Professional Accountants
Calgary, Alberta
February 22, 2022
Gibson Energy Inc.
Consolidated Balance Sheets
(Amounts in thousands of Canadian dollars, except per share amounts)
Note
As at December 31,
December 31,
2020
2021
Assets
Current assets
Cash and cash equivalents
Trade and other receivables
Inventories
Income taxes receivable
Prepaid and other assets
Net investment in finance leases
Assets held for sale
Non-current assets
Property, plant and equipment
Right-of-use assets
Long-term prepaid and other assets
Net investment in finance leases
Investment in equity accounted investees
Deferred income tax assets
Intangible assets
Goodwill
Total assets
Liabilities and equity
Current liabilities
Trade payables and accrued charges
Income taxes payable
Dividends payable
Contract liabilities
Lease liabilities – current portion
Non-current liabilities
Long-term debt
Lease liabilities – non-current portion
Provisions
Other long-term liabilities
Deferred income tax liabilities
Total liabilities
Equity
Share capital
Contributed surplus
Accumulated other comprehensive income
Deficit
Total liabilities and equity
Commitments and contingencies (note 25)
See accompanying notes to the consolidated financial statements
Approved by the Board of Directors:
(signed) “James M. Estey”
James M. Estey (Director)
5
6
18
7
8
9
7
10
18
11
12
15
18
17
14
13
14
16
18
17
62,688
667,588
255,131
4,809
7,340
8,883
-
1,006,439
1,612,636
52,582
2,065
163,687
172,715
27,406
34,355
359,875
2,425,321
3,431,760
683,708
-
51,319
31,733
29,748
796,508
1,660,609
52,031
180,270
4,061
94,155
1,991,126
2,787,634
1,997,255
66,002
24,310
(1,443,441)
644,126
3,431,760
53,676
333,641
163,113
-
7,595
8,454
18,557
585,036
1,663,649
69,195
1,535
172,466
142,556
36,820
35,781
360,122
2,482,124
3,067,160
403,719
1,496
49,494
45,357
31,208
531,274
1,449,481
71,534
236,952
6,671
91,598
1,856,236
2,387,510
1,977,104
61,820
24,066
(1,383,340)
679,650
3,067,160
(signed) “Marshall L. McRae”
Marshall L. McRae (Director)
41
Gibson Energy Inc.
Consolidated Statements of Operations
(Amounts in thousands of Canadian dollars, except per share amounts)
Revenue
Cost of sales
Gross profit
General and administrative expenses
Other operating (income) expenses, net
Operating income
Finance costs, net
Income before income taxes
Income tax expense
Net income
Earnings per share
Basic earnings per share
Diluted earnings per share
See accompanying notes to the consolidated financial statements
Note
19
10, 20, 21
20, 21, 22
13
18
17
Year ended December 31,
2020
2021
7,211,148
6,906,737
304,411
4,938,066
4,631,926
306,140
68,812
(6,982)
242,581
61,344
181,237
36,184
145,053
65,853
(6,811)
247,098
96,420
150,678
29,369
121,309
0.99
0.97
0.83
0.82
42
Gibson Energy Inc.
Consolidated Statements of Comprehensive Income
(Amounts in thousands of Canadian dollars, except per share amounts)
Net Income
Other comprehensive income (loss)
Items that may be reclassified subsequently to statement of operations
Exchange differences from translating foreign operations
Items that will not be reclassified subsequently to statements of operations
Remeasurements of post-employment benefit obligation, net of tax
Other comprehensive income (loss), net of tax
Comprehensive income
See accompanying notes to the consolidated financial statements
Year ended December 31,
2020
2021
145,053
121,309
(2,912)
3,156
244
(8,363)
(165)
(8,528)
145,297
112,781
43
Gibson Energy Inc.
Consolidated Statements of Changes in Equity
(Amounts in thousands of Canadian dollars, except per share amounts)
Share
capital Contributed
surplus
(note 17)
Accumulated
other
comprehensive
income
Convertible
debentures
Deficit
Total
Equity
Balance – January 1, 2020
1,973,827
46,316
32,594
7,023
(1,299,150)
760,610
Net income
Other comprehensive loss, net of tax
Comprehensive (loss) income
Exercise of debentures conversion
option
Share-based compensation
Tax effect of equity settled awards
Proceeds from exercise of stock
options
Reclassification of contributed surplus
Repurchase of shares under Normal
Course Issuer Bid
Dividends on common shares ($1.36
per common share)
-
-
-
3,515
-
117
927
10,448
(11,730)
-
-
-
-
-
18,660
269
-
(3,425)
-
-
-
(8,528)
(8,528)
-
-
-
-
-
-
-
Balance – December 31, 2020
1,977,104
61,820
24,066
Balance – January 1, 2021
1,977,104
61,820
24,066
Net income
Other comprehensive income, net of
tax
Comprehensive income
Share-based compensation
Tax effect of equity settled awards
Proceeds from exercise of stock
options
Reclassification of contributed surplus
Dividends on common shares ($1.40
per common share)
-
-
-
-
1,172
2,147
16,832
-
-
-
20,905
109
-
(16,832)
-
-
-
244
244
-
-
-
-
-
Balance – December 31, 2021
1,997,255
66,002
24,310
See accompanying notes to the consolidated financial statements
-
-
-
-
-
-
-
(7,023)
-
-
-
-
-
-
-
-
-
-
-
-
-
121,309
-
121,309
121,309
(8,528)
112,781
-
-
-
-
-
3,515
18,660
386
927
-
(6,832)
(18,562)
(198,667)
(198,667)
(1,383,340)
679,650
(1,383,340)
679,650
145,053
145,053
-
145,053
-
-
-
-
244
145,297
20,905
1,281
2,147
-
(205,154)
(205,154)
(1,443,441)
644,126
44
Gibson Energy Inc.
Consolidated Statements of Cash Flows
(Amounts in thousands of Canadian dollars, except per share amounts)
Cash flows from operating activities
Net income
Adjustments
Changes in items of working capital
Income tax payment, net
Net cash inflow from operating activities
Cash flows from investing activities
Purchase of property, plant and equipment and intangible assets
Investment in equity accounted investees
Proceeds from sale of assets
Net cash outflow from investing activities
Cash flows from financing activities
Payment of shareholder dividends
Interest paid, net
Proceeds from exercise of stock options
Repayment of long-term debt, net of cost
Proceeds from issuance of long-term debt, net of cost
Lease payments
Repurchase of shares under normal course issuer bid
Draws on credit facility, net
Net cash outflow from financing activities
Net increase in cash and cash equivalents
Effect of exchange rate on cash and cash equivalents
Cash and cash equivalents – beginning
Note
Year ended December 31,
2020
2021
27
27
27
8
10
13
13
14
17
13
145,053
284,578
(183,103)
(29,722)
216,806
(117,672)
(29,210)
19,822
(127,060)
(203,329)
(54,751)
2,147
-
(328)
(36,694)
-
210,000
(82,955)
6,791
2,221
53,676
121,309
319,133
27,286
(8,177)
459,551
(215,098)
(120,705)
31,849
(303,954)
(197,246)
(62,534)
927
(719,989)
892,972
(44,967)
(18,562)
-
(149,399)
6,198
247
47,231
Cash and cash equivalents – end
62,688
53,676
See accompanying notes to the consolidated financial statements
See notes 13, 14 and 17 for reconciliation of movement of financial liabilities and equity.
45
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
Note 1 Description of Business and Segmented Disclosure
Gibson Energy Inc. (the “Company”) is the ultimate parent company and was incorporated pursuant to the Business Corporations Act
(Alberta) on April 11, 2011. 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. The Company’s common shares are traded on the
Toronto Stock Exchange under the symbol “GEI”.
The Company had the following principal subsidiaries as at December 31, 2021:
Name
Gibson (U.S.) Holdco Corp.
Name
Moose Jaw Refinery Partnership
Gibson Energy Infrastructure Partnership
Gibson (U.S.) Acquisition Corp.
Nature of entity
Holding Company
Nature of business
Crude oil processing
Marketing and Infrastructure
Marketing and Infrastructure
The Company is a liquids infrastructure company with our principal businesses consisting of storage, optimization, processing, and
gathering of crude oil and refined products.
The Company’s reportable segments are:
Infrastructure, which includes a network of oil infrastructure assets that include oil terminals, rail loading and unloading
facilities, gathering pipelines, a crude oil processing facility, and other small terminals. The primary facilities within this
segment include the Hardisty and Edmonton Terminals, 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; an infrastructure position located in the United States (“U.S.”); and a crude oil processing facility in Moose Jaw,
Saskatchewan (the “Moose Jaw Facility”). The Infrastructure segment also includes the Company’s share of equity pick up
from equity accounted investees. The Moose Jaw Facility is impacted by maintenance turnarounds typically occurring within
the spring every few years.
Marketing, which is involved in the purchasing, selling, storing and optimizing of hydrocarbon products as part of supplying
the Moose Jaw Facility and marketing its refined products as well as helping to drive volumes through the Company’s key
infrastructure assets. The Marketing segment also engages in optimization opportunities which are typically location, quality
and time-based. The hydrocarbon products include crude oil, natural gas liquids, and road asphalt, roofing flux, frac oils,
light and heavy straight run distillates, combined vacuum gas oil and an oil-based mud product. The Marketing segment
sources the majority of its hydrocarbon products from Western Canada as well as the Permian basin and markets those
products throughout Canada and the U.S. The Moose Jaw Facility business is impacted by certain seasonality of operations
specific to the oil and gas industry and asphalt product demand.
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 revenue 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.
46
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
a) Statement of operations
Year ended December 31, 2021
Infrastructure
Marketing
Total
Revenue
External
Inter-segmental
External and inter-segmental
Segment profit
Corporate and other reconciling items:
Depreciation and impairment of property, plant and equipment
Depreciation of right-of-use assets
Amortization of intangible assets
General and administrative
Stock based compensation
Corporate foreign exchange loss
Interest expense, net
Net income before income tax
Income tax expense
Net income
Statement of operations
333,715
186,047
519,762
433,929
6,877,433
86,148
6,963,581
7,211,148
272,195
7,483,343
41,267
475,196
136,068
29,123
8,670
34,481
23,335
938
61,344
181,237
36,184
145,053
Year ended December 31, 2020
Infrastructure
Marketing
Total
Revenue
External
Inter-segmental
External and inter-segmental
Segment profit
Corporate and other reconciling items:
Depreciation and impairment of property, plant and equipment
Depreciation of right-of-use assets
Amortization of intangible assets
General and administrative
Stock based compensation
Corporate foreign exchange gain
Debt extinguishment costs
Interest expense, net
Net income before income tax
Income tax expense
Net income
303,859
161,461
465,320
374,424
4,634,207
31,218
4,665,425
4,938,066
192,679
5,130,745
94,623
469,047
124,057
37,962
7,403
33,081
21,144
(1,698)
31,833
64,587
150,678
29,369
121,309
47
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
The breakdown of additions to property, plant and equipment, investment in equity accounted investees and intangible assets by
reportable segment is as follows:
Additions
Infrastructure
Marketing
Corporate
b) Geographic Data
Year ended December 31,
2020
2021
168,152
2,308
5,937
315,607
12,945
3,142
176,397
331,694
Based on the location of the end user, approximately $1,462.4 million and $1,476.2 million of revenue was from customers in the
U.S. for the years ended December 31, 2021 and 2020, respectively.
The Company’s non-current assets, excluding investment in finance leases, investment in equity accounted investees and deferred
tax assets are primarily concentrated in Canada, with $220.2 million and $207.6 million in the U.S. as at December 31, 2021 and 2020,
respectively.
Note 2 Basis of Preparation
These consolidated financial statements have been prepared in compliance with International Financial Reporting Standards (“IFRS”)
as issued by the International Accounting Standards Board.
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 US$ are to U.S. dollars.
These consolidated financial statements were approved for issuance by the Company’s board of directors (the “Board”) on February
22, 2022.
Note 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 the applicable years presented.
a) 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 on a recurring basis as required by the respective accounting standards.
b) Basis of consolidation
These consolidated financial statements include the results of the Company and its subsidiaries together with its interest in joint
arrangements.
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.
Joint arrangements represent activities where the Company has joint control established by a contractual agreement. Joint control
requires unanimous consent for the relevant financial and operational decisions. A joint arrangement is either a joint operation,
whereby the parties have rights to the assets and obligations for the liabilities, or a joint venture, whereby the parties have rights to
the net assets. Where the Company has assessed the nature of its joint arrangements to be joint operations, it has recognized its
proportionate share of revenue, expenses, assets and liabilities relating to these joint operations. The Company’s joint ventures are
accounted for using the equity method of accounting and are initially recognized at cost. The joint ventures are adjusted thereafter
for the post-acquisition change in the Company's share of the equity accounted investment's net assets. The Company's consolidated
48
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
financial statements include its share of the equity accounted investment's profit or loss and other comprehensive income, until the
date that joint control ceases. When the Company's share of losses exceeds its interest in an equity accounted investee, the carrying
amount of that interest, including any long-term investments, is reduced to nil, and the recognition of further losses is discontinued
except to the extent that the Company has an obligation or has made payments on behalf of the investee. Distributions from
investments in equity accounted investees are recognized when received.
Acquisition of an incremental ownership in a joint arrangement where the Company maintains joint control is recorded at cost or fair
value if acquired as part of a business combination. Where the Company has a partial disposal, including a deemed disposal, of a joint
arrangement and maintains joint control, the resulting gains or losses are recorded in earnings at the time of disposal.
All intercompany transactions, balances, income and expenses are eliminated in preparing the consolidated financial statements.
Gains arising from transactions with investments in equity accounted investees are eliminated against the investment to the extent
of Company’s interest in the investee. Losses are eliminated in the same way as unrealized gains, but only to the extent that there is
no evidence of impairment.
c) 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.
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.
d) 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.
49
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
e) Intangible assets
Intangible assets are stated at cost, less accumulated amortization and 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:
Long-term customer contracts .......................................................................................................................................... 6 – 10 years
Technology, software and license ..................................................................................................................................... 3 – 10 years
The expected useful lives and method of amortization of intangible assets are reviewed on an annual basis and, if necessary, changes
in expected useful life are accounted for prospectively.
The carrying value of intangible assets is reviewed for impairment whenever events or changes in circumstances indicate carrying
value may not be recoverable.
f) Property, plant and equipment
Property, plant and equipment is stated at cost, less accumulated depreciation and impairment losses.
The initial cost of an asset comprises of 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.
Expenditures on major maintenance refits or repairs comprises of 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 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
Pipelines and connections ..................................................................................................................................................... 8 – 30 years
Tanks .................................................................................................................................................................................. 20 – 30 years
Plant ................................................................................................................................................................................... 10 – 25 years
Disposal wells ...................................................................................................................................................................... 20 – 25 years
Rolling Stock .......................................................................................................................................................................... 5 – 13 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 from the 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.
50
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
g) Impairments
The Company carries out impairment reviews in respect of goodwill at least annually or if indicators of possible impairment exist.
Goodwill is monitored for impairment by management at the operating segment level. 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, reduced operational activity, 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 (VIU). 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 FVLCD and VIU. VIU 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 after it has been recognized. Otherwise an impairment loss may be reversed
if a triggering event occurs indicating a change in the recoverable amount. If there is an indication that impairment loss recognized
in prior periods for an asset other than goodwill may no longer exist or may have decreased, the 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.
h) Assets held for sale and discontinued operations
Non-current assets are classified as held for sale if their carrying amounts are expected to be recovered through sale 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 with impairments
recognized in the consolidated statement of operations, except for deferred tax assets for tax loss carry-forwards to the extent that
the realization through future taxable profits is probable. An impairment loss is recognized for any initial or subsequent write-down
of the asset (or disposal group) to fair value less costs of disposal, in accordance with our impairment policy. 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 statement of operations and cash flows, and comparative figures are restated.
i)
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.
51
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
j) Leases - lessee
All leases are recognized as a right-of-use asset and corresponding liability at the date of which the leased asset is available for use
by the Company. Each lease payment is allocated between the liability and finance cost. The finance cost is charged to the
consolidated statement of operations over the lease term so as to produce a constant periodic rate of interest on the remaining
balance of the liability for each period. The right-of-use asset is depreciated over the shorter of the asset’s useful life and the lease
term on a straight-line basis.
The Company uses a single discount rate for a portfolio of leases with reasonably similar characteristics. Lease payments on short
term leases with lease terms of less than twelve months or leases on which the underlying asset is of low value are accounted for as
expenses in the consolidated statement of operations.
Assets and liabilities arising from a lease are initially measured on a present value basis. Lease liabilities include the net present value
of fixed payments (including in-substance fixed payments), less any lease incentives receivable, variable lease payments that are
based on an index or a rate, amounts expected to be payable under residual value guarantees, the exercise price of a purchase option
if reasonably certain to exercise that option, and payments of penalties for terminating the lease, if the lease term reflects exercising
that option. These lease payments are discounted using the Company’s incremental borrowing rate where the rate implicit in the
lease is not readily determinable.
Right-of-use assets are measured at cost comprising of the amount of the initial measurement of lease liability, any lease payments
made at or before the commencement date, any initial direct costs, and restoration costs.
k) Leases - lessor
Leases in contractual arrangements which transfer substantially all the risks and benefits of ownership of property to the lessee are
accounted for as finance leases, while all other leases are accounted for as operating leases.
Finance leases 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.
l) 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 significant, 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
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.
52
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
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 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.
m) Employee benefits
Defined benefit pension plans
The liability recognised in respect of defined benefit plans is the present value of the defined benefit obligation at the end of the
reporting period less the fair value of plan assets. The defined benefit obligation is calculated annually by independent actuaries using
the projected unit credit method. The present value of the defined benefit obligation is determined by discounting the estimated
future cash outflows using interest rates of high-quality corporate bonds that are denominated in the currency in which the benefits
will be paid, and that have terms to maturity approximating to the terms of the related pension obligation.
Actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions are charged or credited to equity
in other comprehensive income in the period in which they arise.
Past-service costs or credits are recognised immediately in 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’s five day 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.
53
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
Termination benefits
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.
n) 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 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.
The Company maintains provisions for uncertain income tax positions using the best estimate of the amount expected to be paid in
resolution of the uncertainty. To ensure the adequacy of these provisions, the Company reviews uncertain tax positions at the end
of each reporting period to give effect to changes in facts and circumstances and the availability of new information.
o) Revenue recognition
Revenue is measured based on the consideration specified in a contract with a customer and excludes amounts collected on behalf
of third parties. The Company recognizes revenue when it transfers control of a product or service to a customer, either at a point in
time or over time. The Company does not have contracts where the period between the transfer of the promised goods or services
to the customer and payments by the customer exceeds one year. As such, no adjustments are made to the transaction prices for
the time value of money.
Revenue generated through the provision of services charged through long-term fixed-fee contracts related to midstream
infrastructure assets and includes a fixed and/or take-or-pay portion for the use of the midstream infrastructure and a variable
portion related to the servicing of volume throughput. The Company accounts for individual services separately if they are distinct,
indicated by the fact that they are separately identifiable from other services provided and the customer can benefit from these
distinct services. The stand-alone prices on services are determined by the rates listed within the individual contracts related to the
service. The Company recognizes revenue over time as services are provided on a monthly basis, consistent with when the services
are billed and paid. Long-term take-or-pay contracts, under which shippers are obligated to pay fixed amounts evenly over the
contract period regardless of volumes shipped, may contain breakage rights. Breakage amounts 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 revenue associated with breakage at the earlier of when the
breakage volume is shipped, the rights expires or when it is determined that the likelihood that the shipper will utilize the right is
remote.
Revenue generated through the purchasing, selling, storing and blending of hydrocarbon products as well as by providing aggregation
services to producers and/by capturing quality, locational or time-based arbitrage opportunities are typically short to long term in
accordance with a customer’s current product demands which are generally grouped as spot sales where no commitment exists prior
to the day of the transaction, term sales where a commitment exists over a period of time for negotiated sales, and evergreen sales
where contracts are automatically renewed on a month to month basis. The Company accounts for individual product sales separately
if they are distinct, indicated by the fact that they are separately identifiable from other enforceable rights and obligations and the
customer can benefit from these distinct services. The stand-alone prices on product sales are determined by the rates listed within
market indexes and benchmarks and usually include quality or transportation adjustments. The Company recognizes revenue at a
point in time as products are delivered and control of the product has transferred to the customer, consistent with when the products
are billed and paid. All payments received before delivery are recorded as a contract liability and are recognized as revenue when
delivery occurs, assuming all other criteria are met. Revenue from buy/sell transactions which are monetary transactions containing
54
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
commercial substance is recognized on a gross-basis as separate performance obligation. Revenue from buy/sell transactions of non-
monetary exchanges of similar products, which lack commercial substance, are recognized on a net basis.
Revenue generated from the provision of transportation and related services such as hauling services for crude oil within the U.S. are
typically short-term in accordance with a customer’s current hauling requirements. The Company accounts for individual hauling
services separately if they are distinct, indicated by the fact that they are separately identifiable from other hauling services provided
and the customer can benefit from these distinct services. The stand-alone prices on services are determined by the rates listed by
the Company and are predetermined based on the volume of products serviced. The Company recognizes revenue over time as
hauling and transportation services are provided and control of the service transfers to the customer, consistent with when the
services are billed and paid.
p) 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.
q) 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.
r) 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.
s) 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.
t) 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.
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.
55
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
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.
Financial liabilities
Financial liabilities classified as other liabilities include trade payables and accrued charges, dividends payable, and long-term debt.
The Company determines the classification of its financial liabilities at initial recognition. All financial liabilities are initially recognized
at fair value. For interest-bearing loans and borrowings this is the fair value of the proceeds received net of issue costs associated
with the borrowing. After initial recognition, financial liabilities are subsequently measured at amortized cost using the effective
interest method. Amortized cost is calculated by taking into account any issue costs, and any discount or premium on settlement.
Gains and losses arising on the repurchase, settlement, modification 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.
u) Derivative financial instruments – recognition and measurement
Derivative financial instruments, used periodically by the Company to manage exposure to market risks relating to commodity prices,
share-based compensation and foreign currency, 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.
v) 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.
i) 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 revenue 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.
Impairment assessment of non-financial assets
The Company tests annually whether goodwill of an operating segment has suffered any impairment. The recoverable amounts of
the operating segments are determined based on the higher of VIU and FVLCD calculations that 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.
56
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
In the impairment analysis of the Company’s assets, some of the key assumptions used are budgeted earnings before interest, taxes,
depreciation and amortization less corporate expenses (EBITDA) which involves estimating revenue growth rates, future commodity
prices, expected margins, expected sales volumes, cost structures, multiples of comparable public companies of the operating
segment, terminal value and discount rates.
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.
Provisions
Provisions for decommissioning and environmental remediation are recorded when it is considered probable and the costs can be
reasonably estimated. The eventual costs are uncertain and cost estimates can vary in response to many factors including changes
to relevant legal and constructive obligations, the application of new technologies, and the Company’s past experience in comparable
decommissioning and environmental remediation activities. The Company uses third-party evaluators, where determined necessary,
to obtain the estimates of the decommissioning and environmental provision.
ii) Critical judgements in applying the Company’s accounting policies
Critical judgements in determining lease terms
The Company uses hindsight in determining the lease term where a contract contains options to extend or terminate the lease. In
determining the lease term, management considers all facts and circumstances that create an economic incentive to exercise an
extension option, or not exercise a termination option. The assessment is reviewed upon a trigger by a significant event or a significant
change in circumstances.
Joint arrangements
The determination of joint control requires judgment about the influence the Company has over the financial and operating decisions
of an arrangement and the extent of the benefits it obtains based on the facts and circumstances of the arrangement during the
reporting period. Joint control exists when decisions about the relevant activities require the unanimous consent of the parties that
control the arrangement collectively. Ownership percentage alone may not be a determinant of joint control. Once joint control has
been determined, the arrangement is classified as a joint venture or a joint operation, depending on the rights and obligations of the
parties to the agreement.
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 if the arrangement conveys the right to control the use of an identified asset for a period of time
in exchange for consideration. Where such rights do not exist, the arrangement is considered a service contract. For those
arrangements considered to be a lease, further judgement is required to determine whether if 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.
57
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
Current and deferred taxation
The computation of the Company’s income tax expense involves the interpretation of applicable tax laws and regulations in many
jurisdictions. The resolution of tax positions taken by the Company can take significant time to complete and in some cases it is
difficult to predict the ultimate outcome. In addition, the Company has carry-forward tax losses in certain taxing jurisdictions that
are available to offset against future taxable profit. This involves an assessment of when those deferred tax assets are likely to be
realized, and a judgment as to whether or not there will be sufficient taxable profits available to offset the tax assets when they do
reverse. This requires assumptions regarding future profitability and is therefore inherently uncertain. To the extent assumptions
regarding future profitability change, there can be an increase or decrease in the amounts recognized in respect of deferred tax
assets as well as in the amounts recognized in consolidated statement of operations in the period in which the change occurs.
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.
Impact of the coronavirus (“COVID-19”) pandemic
The COVID-19 pandemic continues to evolve and despite the governmental responses to control and restrict the spread, it continued
to result in disruptions of business operations and an increase in economic uncertainty worldwide. As a result, there remains
significant uncertainty as to the extent and duration of the global economic slowdown. This uncertainty has created volatility in asset
prices, currency exchange rates and a marked decline in long-term interest rates. Management applied judgment and will continue
to assess the situation in determining the impact of the significant uncertainties created by these events and conditions on the
carrying amounts of assets and liabilities in the consolidated financial statements.
Note 4 Changes in Accounting Policies and Disclosures
a) New and amended standards adopted by the Company:
During the year ended December 31, 2021, there were no new or amended IFRS standards adopted by the Company. The accounting
policies applied herein are consistent with those disclosed in the consolidated financial statements for the year ended December 31,
2020.
b) New and amended standards and interpretations issued but not yet adopted:
The Company has assessed the impact of the following amendments to the standards and interpretations applicable for future
periods and do not expect these to have a material impact on the Company’s consolidated financial statements at the adoption date:
o
o
o
o
IAS 1 – Presentation of Financial Statements (“IAS 1”), has been amended to clarify how to classify debt and other liabilities
as either current or non-current. The amendment to IAS 1 is effective for the years beginning on or after January 1, 2023;
The annual improvements process addresses issues in the 2018-2020 reporting cycles including changes to IFRS 9, Financial
Instruments, IFRS 1, First Time Adoption of IFRS, IFRS 16, Leases, and IAS 41, Biological Assets. These improvements are
effective for periods beginning on or after January 1, 2022;
IAS 37 – Provisions (“IAS 37”), has been amended to clarify (i) the meaning of “costs to fulfil a contract”, and (ii) that, before
a separate provision for an onerous contract is established, an entity recognizes any impairment loss that has occurred on
assets used in fulfilling the contract, rather than on assets dedicated to that contract. These amendments are effective for
periods beginning on or after January 1, 2022; and
IAS 16 – Property, Plant and Equipment (“IAS 16”), has been amended to (i) prohibit an entity from deducting from the cost
of an item of PP&E any proceeds received from selling items produced while the entity is preparing the asset for its intended
use (for example, the proceeds from selling samples produced when testing a machine to see if it is functioning properly),
(ii) clarify that an entity is “testing whether the asset is functioning properly” when it assesses the technical and physical
performance of the asset, and (iii) require certain related disclosures. These improvements are effective for periods
beginning on or after January 1, 2022.
58
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
The Company continues to assess the impact of the following amendment:
o
IAS 12 – Income Taxes (“IAS 12”), has been amended to recognise deferred tax on particular transactions that, on initial
recognition, give rise to equal amounts of taxable and deductible temporary differences. These amendments are effective
for periods beginning on or after January 1, 2023.
Note 5 Trade and Other Receivables
Trade receivables
Allowance for doubtful accounts
Trade receivables, net
Risk management assets
Indirect taxes receivable
Other
Allowance for doubtful accounts
Opening balance
Additional allowances and adjustments
Receivables written off as uncollectible
Effect of changes in foreign exchange rates
Closing balance
Note
24
December 31,
2021
648,729
(262)
648,467
4,476
14,008
637
2020
320,779
(566)
320,213
3,279
7,896
2,253
667,588
333,641
Year ended December 31,
2020
2021
(566)
186
120
(2)
(262)
(131)
(2,064)
1,628
1
(566)
59
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
Note 6 Inventories
Crude oil and diluent
Asphalt
Natural gas liquids
Wellsite fluids and distillate
December 31,
2021
2020
188,265
48,518
6,246
12,102
115,809
20,852
14,479
11,973
255,131
163,113
The cost of the inventory sold included in cost of sales was $6,639 million and $4,380 million for the years ended December 31, 2021
and 2020, respectively.
Within the marketing segment, the Company recorded a gross inventory write-down to its net realizable value of $22.1 million and
$28.2 million during the years ended December 31, 2021 and 2020, respectively. These were recognized as an expense and included
in cost of sales in the consolidated statements of operations.
Note 7 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 infrastructure assets owned by the Company. These
arrangements are accounted for as finance leases:
Total minimum lease payments receivable
Residual value
Unearned income
Less: current portion
December 31,
2021
2020
499,939
68,464
(395,833)
172,570
8,883
545,311
68,464
(432,855)
180,920
8,454
Net investment in finance lease: non-current portion
163,687
172,466
The minimum lease receivables are expected to be as follows:
2022
2023
2024
2025
2026
2027 and later
43,810
34,940
33,035
33,301
33,575
321,278
60
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
Note 8 Property, Plant and Equipment
Land and
Buildings
Note
Pipelines
and
Connections
Cost:
At January 1, 2021
Additions and adjustments
Disposals
Reclassifications
Change in decommissioning provision
Effect of movements in exchange rates
16
123,661
5,155
(14)
5,560
-
(27)
482,350
13,662
-
2,009
(3,092)
(684)
Plant,
Equipment
and Other
922,220
31,596
(26,663)
23,613
(38,057)
(759)
Tanks
823,871
12,113
(334)
2,151
(14,271)
(96)
Work in
Progress
80,021
89,892
-
(33,333)
-
(181)
Total
2,432,123
152,418
(27,011)
-
(55,420)
(1,747)
At December 31, 2021
134,335
494,245
823,434
911,950
136,399
2,500,363
Accumulated depreciation and
impairment:
At January 1, 2021
Depreciation and adjustments
Disposals
Effect of movements in exchange rates
27,727
7,472
(1)
2
128,640
23,096
-
11
185,961
33,829
(239)
(11)
426,146
80,507
(24,951)
(462)
At December 31, 2021
35,200
151,747
219,540
481,240
-
-
-
-
-
768,474
144,904
(25,191)
(460)
887,727
Carrying amounts:
At January 1, 2021
At December 31, 2021
95,934
99,135
353,710
342,498
637,910
603,894
496,074
430,710
80,021
136,399
1,663,649
1,612,636
Note
Land and Pipelines and
Connections
Buildings
Equipment
and Other
Tanks
Work in
Progress
Total
Cost:
At January 1, 2020
Additions and adjustments
Disposals
Reclassifications
Change in decommissioning provision 16
Effect of movements in exchange
Transfer from (to) held for sale and
disposals, net
125,414
1,748
-
2,685
-
(122)
413,590
48,770
-
15,854
6,278
(2,142)
727,660
51,388
(257)
20,384
20,109
(510)
783,088
51,847
(5,083)
37,254
10,182
(1,311)
110,343
47,530
-
(76,177)
-
(1,675)
2,160,095
201,283
(5,340)
-
36,569
(5,760)
(6,064)
-
5,097
46,243
-
45,276
At December 31, 2020
123,661
482,350
823,871
922,220
80,021
2,432,123
61
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
Pipelines
Land and
and
Buildings Connections
Plant,
Equipment
and Other
Tanks
Work in
Progress
Total
Accumulated depreciation and
impairment:
At January 1, 2020
Depreciation and adjustments
Disposals
Effect of movements in exchange rates
Transferred from (to) held for sale and
disposals, net
22,923
106,125
5,061 22,674
-
(159)
-
-
154,506
317,779
29,936 66,386
(4,581)
(566)
(13)
(131)
-
-
-
-
601,333
124,057
(4,712)
(738)
(257)
-
1,663
47,128
-
48,534
At December 31, 2020
27,727
128,640
185,961
426,146
-
768,474
Carrying amounts:
At January 1, 2020
At December 31, 2020
102,491
95,934
307,465
353,710
573,154
637,910
465,309
496,074
110,343
80,021
1,558,762
1,663,649
Additions to property, plant and equipment include the capitalization of interest of $1.4 million and $2.9 million for the years ended
December 31, 2021 and 2020, respectively. Amounts in relation to infrastructure assets are under operating lease arrangements.
During the second quarter of 2021, the Company indefinitely suspended certain non-performing assets within its infrastructure
segment, resulting in the recording of an impairment charge of $11.5 million that was included within cost of sales in the consolidated
statements of operations.
Note 9 Right-of-use Assets
Cost:
At January 1, 2021
Additions and adjustments
Disposals
Effect of movements in exchange rates
Buildings
Rail Cars
Surface Leases
and Other
49,500
594
(5,326)
(19)
110,835
10,446
(20,471)
-
12,764
3,008
(9,770)
57
Total
173,099
14,048
(35,567)
38
At December 31, 2021
44,749
100,810
6,059
151,618
Accumulated depreciation and
impairment:
At January 1, 2021
Depreciation and adjustments
Disposals
Effect of movements in exchange rates
At December 31, 2021
Carrying amounts:
At January 1, 2021
At December 31, 2021
20,352
5,298
(5,327)
(1)
20,322
73,402
21,810
(20,471)
-
10,150
3,554
(9,770)
39
103,904
30,662
(35,568)
38
74,741
3,973
99,036
29,148
24,427
37,433
26,069
2,614
2,086
69,195
52,582
62
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
Buildings
Rail Cars
Surface Leases
and Other
Cost:
At January 1, 2020
Additions and adjustments
Disposals
Effect of movements in exchange rates
Transferred from held for sale and disposals
54,553
(1,141)
(3,869)
(43)
-
110,249
15,452
(14,866)
-
-
At December 31, 2020
49,500
110,835
Accumulated depreciation and
impairment:
At January 1, 2020
Depreciation and adjustments
Disposals
Effect of movements in exchange rates
Transferred from held for sale and disposals
At December 31, 2020
Carrying amounts:
At January 1, 2020
At December 31, 2020
Note 10 Investment in Equity Accounted Investees
15,009
5,818
(430)
(45)
-
20,352
39,544
29,148
60,808
27,460
(14,866)
-
-
Total
176,773
14,949
(18,806)
(147)
330
173,099
81,288
38,003
(15,327)
(266)
206
11,971
638
(71)
(104)
330
12,764
5,471
4,725
(31)
(221)
206
73,402
10,150
103,904
49,441
37,433
6,500
2,614
95,485
69,195
Ownership %
Hardisty Energy Terminal Limited Partnership
Zenith Energy Terminals Joliet Holdings LLC
50%
36%
Share of profit (loss),
for the period ended
December 31,
Investment in equity
accounted investees at
December 31,
2021
5,475
608
6,083
2020
-
2,670
2,670
2021
2020
151,378
120,705
21,337
21,851
172,715
142,556
During 2020, the Company acquired a 50% interest in the Hardisty Energy Terminal Limited Partnership (“HET”) for the purpose of
constructing and operating a Diluent Recovery Unit (“DRU”) adjacent to the Company’s Hardisty Terminal. The project began
operations during the third quarter of 2021. During the year ended December 31, 2021, the Company contributed $29.2 million (year
ended December 31, 2020 - $120.7 million) to fund the construction and commissioning of the facility. With the commencement of
operations, the Company’s share of equity pick up is included within cost of sales on the consolidated statement of operations. For
segment reporting purposes, the Company’s share of equity pick up is included within the Infrastructure segment profit.
During 2019, the Company acquired a 36% interest in Zenith Energy Terminals Holding LLC (“Zenith”). Zenith owns and operates a
crude-by-rail and storage terminal and a pipeline connection to a common carrier crude oil pipeline in Joliet, Illinois. For segment
reporting purposes, the Company’s share of equity pick up is included within the Infrastructure segment profit.
63
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
The majority of assets presented below primarily comprise of cash, property, plant and equipment and trade payables.
Noted below is summarized financial information (presented at 100 percent):
Net income and comprehensive income
Revenue
Cost of sales
General and administrative
Depreciation and amortization
Other income
Net income and comprehensive income
Net income and comprehensive income attributable to the Company
Balance sheet
Current assets
Non-current assets
Current liabilities
Non-current liabilities
Note 11 Intangible Assets
Period ended December 31,
2021
31,430
6,485
7,594
8,600
(3,903)
12,654
6,083
December 31,
2021
32,710
346,850
26,189
22,986
2020
14,280
6,898
1,743
3,015
(4,781)
7,405
2,670
2020
68,379
263,061
48,959
12,020
Brands
Customer
relationships
Long-term
customer Non-compete
contracts
Technology,
Software
agreements and License
Total
Cost:
At January 1, 2021
Additions and adjustments
Disposals
Effect of movements in exchange
rates
22,700
-
-
57,996
-
-
59,774
-
-
-
(145)
(428)
At December 31, 2021
22,700
57,851
59,346
Accumulated amortization and
impairment:
At January 1, 2021
Amortization and adjustments
Disposals
Effect of movements in exchange
rates
At December 31, 2021
Carrying amounts:
At January 1, 2021
At December 31, 2021
22,700
-
-
-
22,700
-
-
57,996
-
-
(145)
57,851
44,952
1,882
-
(296)
46,538
7,559
-
-
(53)
7,506
7,559
-
-
(53)
7,506
74,902
7,441
(27,588)
222,931
7,441
(27,588)
84
(542)
54,839
202,242
53,943
6,788
(27,520)
187,150
8,670
(27,520)
81
(413)
33,292
167,887
-
-
14,822
12,808
-
-
20,959
21,547
35,781
34,355
64
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
Brands
Customer
relationships
Long-term
customer Non-compete
contracts
Technology,
Software
agreements and License
Cost:
At January 1, 2020
Additions and adjustments
Disposals
Effect of movements in exchange
rates
Transferred from held for sale and
disposals, net
At December 31, 2020
Accumulated amortization and
impairment:
At January 1, 2020
Amortization and adjustments
Disposals
Effect of movements in exchange
rates
Transferred from held for sale and
disposals, net
At December 31, 2020
Carrying amounts:
At January 1, 2020
At December 31, 2020
Note 12 Goodwill
22,700
-
-
-
-
22,700
22,700
-
-
-
-
22,700
-
-
52,445
-
-
25,445
-
-
(309)
(908)
5,860
57,996
35,237
59,774
52,445
-
-
(309)
5,860
57,996
8,434
2,012
-
(731)
35,237
44,952
2,230
-
-
(113)
5,442
7,559
2,230
-
-
(113)
5,442
7,559
Total
174,183
3,396
(493)
(1,348)
47,193
71,363
3,396
(493)
(18)
654
74,902
222,931
54,777
(919)
(493)
(21)
599
140,586
1,093
(493)
(1,174)
47,138
53,943
187,150
-
-
17,011
14,822
-
-
16,586
20,959
33,597
35,781
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
U.S. Pipelines
Moose Jaw Facility
Marketing Canada
December 31,
2021
2020
195,662
31,641
89,017
43,555
359,875
195,662
31,888
89,017
43,555
360,122
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, 2021, $325.6 million, net of impairment, relates to
goodwill recognized on the acquisition of the Company on December 12, 2008.
On November 30, 2021, the Company carried out its annual impairment test with respect to goodwill. For all operating segments the
recoverable amount was greater than the carrying value, including goodwill.
65
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
Key assumptions used in 2021 impairment test
The recoverable amount of the operating segments were based on fair value less cost of disposal method using either a discounted
cash flow approach or an earnings multiple approach. The Company references approved budgets and cash flow forecasts, trailing
twelve-month EBITDA, implied multiples and appropriate discount rates in the valuation calculations. The implied multiple is
calculated by utilizing multiples of comparable public companies by operating segment. To determine fair value, historic and implied
forward market multiples were applied to each operating segment’s budgeted EBITDA less corporate expenses. In calculating fair
value for each operating segment, other than U.S. Pipelines, the Company used implied forward market multiples that ranged from
6 to 12. Cash flows were projected based on past experience, actual operating results and the 2022 budget.
The recoverable amount of the U.S. Pipelines segment was determined by discounting the forecasted future cash flows generated
from continued use of the operating segments due to absence of sufficient historical results. The model calculated the present value
of the estimated future earnings of the above stated operating segments. Estimating future earnings requires judgement, considering
past and actual performance as well as expected developments in the respective markets and in the overall macro-economic
environment. The calculation of the recoverable amount using the discounted cash flow approach was based on the following key
assumptions:
Discount rate
Terminal value multiple
U.S. Pipelines
10.5%
7x
(i) Cash flows were projected based on past experience, actual operating results and the long-term business plan.
(ii) The terminal value multiple is based on management's best estimate of transaction multiples over the longer term.
(iii) The discount rate reflects the individual size, risk profile and circumstance and is based on past experience and industry average
weighted average cost of capital.
The fair value of each operating segment was categorized as Level 3 fair value based on the unobservable inputs.
Note 13 Long-Term Debt
Unsecured revolving credit facility
Senior unsecured notes
Senior unsecured notes
Senior unsecured notes
Unsecured hybrid notes
Unamortized issue discount and debt issue costs
Total debt
Unsecured revolving credit facility
Coupon
Rate
floating
2.45%
2.85%
3.60%
5.25%
Year of
Maturity
December 31,
December 31,
2021
2026
2025
2027
2029
2080
270,000
325,000
325,000
500,000
250,000
(9,391)
2020
60,000
325,000
325,000
500,000
250,000
(10,519)
1,660,609
1,449,481
The revolving credit facility of $750.0 million is available to provide financing for working capital, fund capital expenditures and other
general corporate purposes. The revolving credit facility permits 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 credit rating and relative
performance to selected environmental, social and governance targets. The Company must pay standby fees 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.
66
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
During the second quarter of 2021, the Company extended the maturity date of the revolving credit facility from February 2025 to
April 2026 and amongst other amendments, adjusted its pricing mechanism to include sustainability linked terms.
As at December 31, 2021, the Company had the ability to utilize borrowings under the revolving credit facility of $480.0 million. In
addition, the Company has two bilateral demand facilities, which are available for use for general corporate purposes or letters of
credit, totaling $150.0 million under which it had issued letters of credit totaling $35.0 million (December 31, 2020 – $34.7 million).
Senior unsecured notes
The senior unsecured notes carrying a fixed 2.45% per annum coupon rate have semi-annual interest payment dates of January and
July 14 and a maturity date of July 14, 2025.
The senior unsecured notes carrying a fixed 2.85% per annum coupon rate have semi-annual interest payment dates of January and
July 14 and a maturity date of July 14, 2027.
The senior unsecured notes carrying a fixed 3.60% per annum coupon rate have semi-annual interest payment dates of March and
September 17 and a maturity date of September 17, 2029.
The indenture(s) governing the terms of the Company’s senior unsecured notes, as supplemented, contains certain redemption
options whereby the Company can redeem all or part of the senior unsecured notes at such prices and on such dates as set forth
therein. In addition, the holders of the notes have the right to require the Company to repurchase the notes at the purchase prices
set forth in the applicable indenture in the event of a change of control triggering event, being both a change in control of the
Company or a ratings decline of the applicable notes to below an investment grade rating, as such terms are defined in the applicable
indenture.
Unsecured hybrid notes
The unsecured hybrid notes currently carrying a 5.25% per annum coupon rate have a maturity date of December 22, 2080. Interest
is payable semi-annually on June 22 and December 22 of each year the notes are outstanding from December 22, 2020 to, but
excluding, December 22, 2030. From, and including, December 22, 2030, during each Interest Reset Period (as defined in the
applicable indenture) during which the notes are outstanding, the interest rate on the 2080 Hybrid Notes will be reset at a fixed rate
per annum equal to the 5-Year Government of Canada Yield on the business day prior to such Interest Reset Date (as defined in the
applicable indenture) plus, (i) for the period from, and including, December 22, 2030 to, but not including, December 22, 2050,
4.715% and (ii) for the period from, and including, December 22, 2050 to, but not including, the maturity date, 5.465% in each case,
to be reset by the Calculation Agent (as defined in the applicable indenture) on each Interest Reset Date and with the interest during
such period payable in arrears, in equal semi-annual payments on June 22 and December 22 in each year.
The indenture governing the terms of the unsecured hybrid notes, as supplemented, contains certain redemption options whereby
the Company can redeem all or part of the unsecured hybrid notes at such prices and on such dates as set forth therein. In addition,
the holders of the unsecured hybrid notes have the right to require the Company to repurchase the unsecured hybrid notes at the
purchase prices set forth in the applicable indenture in the event of a change in control triggering event, being both a change of
control of the Company or a ratings decline of the applicable notes to below an investment grade rating, as such terms are defined
in the applicable indenture.
The unsecured hybrid notes receive a 50% equity treatment by the Company’s rating agencies, under certain conditions.
Covenants
The Company is required to meet certain specific and customary affirmative and negative financial covenants under various debt
agreements. As at December 31, 2021, the Company was in compliance with all of its covenants.
67
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
The components of finance costs are as follows:
Interest expense
Capitalized interest
Interest expense, finance lease
Interest expense/(income)
Accelerated amortization of debt issuance costs
Note
8
14
Reconciliation of cash flows arising from financing activities (long-term debt)
Opening balance
Proceeds from issuance of long-term debt, net
Repayments
Net cash provided by financing activities from financing activities
Deferred financing costs and other
Redemption of convertible debentures into common shares
Debt extinguishment costs
Closing balance
Note 14 Lease Liabilities
Opening balance
Additions
Disposals
Interest expense
Lease payments
Effect of movements in exchange rates
Closing balance
Less: current portion
Closing balance – non-current portion
Year ended December 31,
2020
2021
58,838
(1,432)
3,656
282
-
62,579
(2,885)
5,110
(217)
31,833
61,344
96,420
Year ended December 31,
2020
2021
1,449,481
209,672
-
1,659,153
1,456
-
-
1,243,836
892,972
(719,989)
1,416,819
4,344
(3,515)
31,833
1,660,609
1,449,481
December 31,
2021
102,742
12,514
(19)
3,656
(36,694)
(420)
81,779
29,748
52,031
2020
131,808
14,974
(3,547)
5,110
(44,967)
(636)
102,742
31,208
71,534
The Company incurs lease payments related to rail cars, head office facilities, vehicles, equipment, and surface leases. Leases are
entered into and exited in coordination with specific business requirements which includes the assessment of the appropriate
durations for the related leased assets. The Company has recognised lease liabilities in relation to lease arrangements measured at
the present value of the remaining lease payments as at December 31, 2021 at a weighted average borrowing rate of 4.4% (December
31, 2020 – 4.6%).
68
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
Note 15 Trade Payables and Accrued charges
Trade payables and accrued charges comprise of the following items:
Trade payables
Accrued compensation charges
Indirect taxes payable
Risk management liabilities
Interest payable
Insurance payable
Other
Note 16 Provisions
Note
24
December 31,
2021
630,329
17,506
1,652
11,711
13,903
2,516
6,091
2020
339,293
21,981
1,010
10,154
13,900
3,359
14,022
683,708
403,719
The aggregate carrying amounts of the obligation associated with decommissioning and site restoration on the retirement of assets
and environmental costs are as follows:
Opening balance
Settlements
Additions
Disposals
Change in estimated future cash flows
Change in discount rate
Unwind of discount
Transfer from liabilities held for sale
Effect of movements in exchange rates
Closing balance
Note
8
8
December 31,
2021
236,952
(4,135)
4,979
(139)
(34,478)
(26,118)
3,284
-
(75)
2020
197,002
(6,270)
17,881
(275)
-
22,079
2,708
4,222
(395)
180,270
236,952
The Company currently estimates the total undiscounted future value amount, including an inflation factor of 2% of estimated cash
flows to settle the future liability for asset retirement and remediation obligations to be approximately $295 million and $322.0
million at December 31, 2021 and 2020, 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 1.7% and 1.2% at December 31, 2021 and 2020,
respectively. The change in the risk-free rate results in an adjustment in cost to the corresponding asset. Changes in the estimated
future cash flows above represent revisions made during the year ended December 31, 2021 as a result of the Company’s review of
the amount of future cash flows to settle decommissioning obligations for select assets. The undiscounted cash flows at the
decommissioning are calculated using an estimated timing of economic outflows ranging up to 43 years with the majority estimated
at 29 years.
A one percent increase or decrease in the risk-free rate would decrease or increase the provision by $40 million (December 31, 2020
– $51.5 million), respectively, with a corresponding adjustment to property, plant and equipment.
69
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
Note 17 Share Capital
a) 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, 2021 or 2020. The unsecured hybrid notes include terms
which could result in conversion into conversion preference shares.
b) Common Shares – Issued and Outstanding
The following table below sets forth the issued and outstanding common shares for the years ended December 31, 2021 and 2020.
At January 1, 2020
Issuance in connection with the exercise of stock options
Exercise of debentures conversion option
Tax effect of equity settled awards
Reclassification of contributed surplus on issuance of awards under equity incentive plans
Purchase of common shares under Normal Course Issuer Bid (“NCIB”)
At December 31, 2020
Number of
Shares
Amount
145,675,481
1,973,827
44,535
162,350
-
555,635
(866,546)
927
3,515
117
10,448
(11,730)
145,571,455
1,977,104
Issuance in connection with the exercise of stock options
Tax effect of equity settled awards
Reclassification of contributed surplus on issuance of awards under equity incentive plans
107,405
-
948,222
2,147
1,172
16,832
At December 31, 2021
146,627,082
1,997,255
A dividend of $0.35 per share, declared on November 2, 2021, was paid on January 14, 2022. For the year ended December 31, 2021,
the Company declared total dividends of $1.40 per common share.
Under the NCIB, the Company is permitted to purchase for cancellation up to 10% or 11,715,229 of the public float for the issued and
outstanding common shares in accordance with the applicable rules and policies of the TSX and securities laws. During the year ended
December 31, 2021, the Company extended its NCIB from August 31, 2021 to August 31, 2022. The Company did not repurchase any
common shares during the year ended December 31, 2021.
70
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
c) Per Share Amounts
The following table shows the number of shares used in the calculation of earnings per share:
Weighted average common shares outstanding – Basic
Dilutive effect of stock options and other awards
Weighted average common shares – Diluted
Year ended December 31,
2021
2020
146,344,843
2,780,715
146,120,871
2,616,653
149,125,558
148,737,524
The dilutive effect of 2.8 million (December 31, 2020 – 2.6 million) stock options and other awards for the year ended December 31,
2021 have been included in the determination of the weighted average number of common shares outstanding. The impact of 0.1
million (December 31, 2020 – 0.6 million) for the year ended December 31, 2021, stock options have not been included in the
determination of weighted average number of common shares outstanding as the inclusion would be anti-dilutive to the net income
per share.
Note 18 Income Taxes
The major components of income tax are as follows:
Current tax expense
Adjustments and true ups in respect of prior years
Total current tax provision
Deferred tax expense (recovery)
Origination and reversal of temporary differences
Total deferred tax expense
Net income tax expense
Year ended December 31,
2021
2020
27,548
(2,502)
32,788
(12,509)
25,046
20,279
8,472
2,666
11,138
(626)
9,716
9,090
36,184
29,369
The income tax expense differs from the amounts which would be obtained by applying the Canadian statutory income tax rate to
income before income taxes. These differences result from the following items:
Income before income tax
Statutory income tax rate
Computed Income tax expense
Changes in income tax expense (recovery) resulting from:
Statutory and other rate differences
Adjustments and true ups in prior years
Others
Net income tax expense
Effective income tax rate
Year ended December 31,
2021
2020
181,237
150,678
23.45%
24.38%
42,500
(4,996)
(1,282)
(38)
36,184
36,735
(4,678)
(2,757)
69
29,369
19.97%
19.49%
71
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
The analysis of deferred tax assets and deferred tax liabilities is as follows:
Deferred tax assets:
Deferred tax assets to be settled after more than 12 months
Deferred tax assets to be settled within 12 months
Deferred tax liabilities:
Deferred tax liabilities to be settled after more than 12 months
Deferred tax liabilities to be settled within 12 months
Deferred tax liabilities, net
The gross movement on the deferred income tax account is as follows:
Opening balance:
Effect of changes in foreign exchange rates
Income statement expense
Tax relating to components of other comprehensive income
Closing balance
Year ended December 31,
2021
2020
24,300
3,106
27,406
92,996
1,159
94,155
66,749
32,418
4,402
36,820
90,414
1,184
91,598
54,778
Year ended December 31,
2021
54,778
202
11,138
631
66,749
2020
45,540
470
9,090
(322)
54,778
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, 2020
(Charged) credited to the statement of operations
Charged to other comprehensive income
Effect of changes in foreign exchange rates
At December 31, 2020
Charged to the statement of operations
Charged to other comprehensive income
Effect of changes in foreign exchange rates
Non-capital losses
carried forward
Asset
retirement
obligations
Goodwill,
Intangibles,
and other
36,918
(401)
-
(1,661)
22,403
2,440
-
(82)
34,856
24,761
(3,366)
-
293
(5,238)
-
20
22,880
4,061
322
549
27,812
(8,577)
(631)
(371)
Total
82,201
6,100
322
(1,194)
87,429
(17,181)
(631)
(58)
At December 31, 2021
31,783
19,543
18,233
69,559
72
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
Deferred tax liabilities
At January 1, 2020
Credited to the statement of operations
Effect of changes in foreign exchange rates
At December 31, 2020
Investments
in Equity
Accounted
Investees
-
-
-
-
Property, Plant
and Equipment
and other
(127,742)
(15,190)
725
Total
(127,742)
(15,190)
725
(142,207)
(142,207)
(Credited) charged to the statement of operations
Effect of changes in foreign exchange rates
(4,407)
-
10,450
(144)
6,043
(144)
At December 31, 2021
(4,407)
(131,901)
(136,308)
Income tax losses carry forward
At December 31, 2021 and 2020, the Company had losses available to offset income for tax purposes of $140.0 million and $147.1
million, respectively. Certain losses arising in taxable years beginning after December 31, 2018 may be carried forward indefinitely
with the net operating loss deduction limited to 80% of taxable income which is determined without regard to the deduction. At
December 31, 2021, the Company has $140.0 million of the losses available in the U.S. that expire as follows:
December 31, 2032
December 31, 2035
December 31, 2036
December 31, 2037
December 31, 2039 and beyond
1,856
18,904
59,887
12,478
46,827
139,952
No income tax liability has been recognized in respect of temporary differences associated with investments in subsidiaries, except
for assets held for sale and investments in equity accounted investees, as the Company can control the timing of the reversal of the
temporary difference and the reversal is not probable in the foreseeable future. At December 31, 2021, the Company recognized a
deferred tax liability of $4.4 million for its investment in HET.
Note 19 Revenue
Revenue from contracts with customers recognized at a point in time
Revenue from contracts with customers recognized over time
Total revenue from contracts with customers
Total revenue from lease arrangements
Year ended December 31,
2020
2021
6,897,328
131,908
7,029,236
181,912
4,634,398
130,888
4,765,286
172,780
7,211,148
4,938,066
During the year ended December 31, 2021, the Company recognized $45.4 million of revenue which were included in the contract
liability balance at the beginning of the period (2020 – $66.1 million).
73
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
Year ended December 31, 2021
Infrastructure
Marketing
Total
Canada
External Service Revenue
Terminals storage and throughput / pipeline transportation
Rail and other
External Product Revenue
Crude, diluent and other products
Refined products
U.S.
External Product Revenue
Crude, diluent and other products
Refined products and other
84,446
67,343
-
-
151,789
-
14
14
-
-
5,290,736
124,313
5,415,049
1,155,324
307,060
1,462,384
84,446
67,343
5,290,736
124,313
5,566,838
1,155,324
307,074
1,462,398
Total revenue from contracts with customers
151,803
6,877,433
7,029,236
Year ended December 31, 2020
Infrastructure
Marketing
Total
Canada
External Service Revenue
Terminals storage and throughput / pipeline transportation
Rail and other
External Product Revenue
Crude, diluent and other products
Refined products and other
U.S.
External Product Revenue
Crude, diluent and other products
Refined products and other
Total revenue from contracts with customers
Note 20 Depreciation, Amortization and Impairment
Depreciation and impairment of property, plant and equipment
Depreciation of right-to-use asset
Amortization and impairment of intangible assets
72,052
58,836
-
-
130,888
-
191
191
131,079
note
8
9
11
-
-
3,075,996
82,140
3,158,136
1,274,987
201,084
1,476,071
4,634,207
72,052
58,836
3,075,996
82,140
3,289,024
1,274,987
198,534
1,476,262
4,765,286
Year ended December 31,
2021
2020
136,068
29,123
8,670
173,861
124,057
37,962
7,403
169,422
74
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
Depreciation, amortization and impairment have been expensed as follows:
Cost of sales
General and administrative
Note 21 Employee Salaries and Benefits
Salaries and wages
Post-employment benefits
Share-based compensation
Termination costs
Employee salaries and benefits have been expensed as follows:
Cost of sales
General and administrative
Compensation of key management
Year ended December 31,
2021
2020
162,919
10,942
173,861
158,068
11,354
169,422
Year ended December 31,
2021
78,839
3,634
23,335
1,960
2020
79,503
3,631
21,144
2,879
107,768
107,157
Year ended December 31,
2021
2020
62,079
45,689
107,768
63,274
43,883
107,157
Key management includes the Company’s directors and senior executive officers. Compensation awarded to key management was:
Salaries and wages
Post-employment benefits (recovery)
Share-based compensation
Termination costs
Note 22 Share-based Compensation
Year ended December 31,
2021
2020
6,159
92
10,846
-
17,097
6,362
90
8,444
1,716
16,612
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 the current and
prior period are 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 depends on the achievement
75
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
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.
At December 31, 2021, common share awards available to grant under the equity incentive plan are approximately 4.6 million.
A summary activity under the equity incentive plan is as follows:
At January 1, 2020
Granted
Exercised and released for common shares
Forfeited
At December 31, 2020
Granted
Exercised and released for common shares
Forfeited
At December 31, 2021
Vested and exercisable at December 31, 2020
Vested and exercisable at December 31, 2021
Number of
shares
Weighted Average
Exercise price
(in dollars)
Stock Options
2,014,943
65,000
(44,535)
(104,099)
1,931,309
62,000
(107,405)
(76,908)
1,808,996
1,400,834
1,295,532
19.81
17.53
20.83
26.58
19.35
22.18
19.99
28.77
19.01
18.32
17.73
Additional information regarding stock options outstanding as of December 31, 2021 is as follows:
Outstanding
Weighted average
remaining
contractual life
(years)
1.2
0.5
2.5
4.2
2.2
0.5
0.2
0.2
1.2
Exercise price
(in dollars)
16.70
17.09
18.49
22.18
22.70
23.13
25.33
26.59
Number
outstanding
96,762
1,007,726
119,454
58,000
488,716
12,677
15,532
10,129
1,808,996
Exercisable
Weighted average
remaining
contractual life
(years)
1.2
0.5
2.1
-
2.2
0.5
0.2
0.2
0.7
Number
outstanding
96,762
1,007,726
79,458
-
73,248
12,677
15,532
10,129
1,295,532
Exercise price
(in dollars)
16.70
17.09
18.97
-
22.70
23.13
25.33
26.59
76
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
A summary of RSUs, PSUs and DSUs activity is set forth below:
At January 1, 2020
Granted
Exercised and released for common shares
Forfeited
Restricted
Share Units
Number of units
Performance
Share Units
Deferred
Share Units
618,274
559,933
(297,633)
(50,134)
682,601
603,907
(220,255)
(81,634)
457,578
164,106
(37,747)
-
At December 31, 2020
830,440
984,619
583,937
Granted
Exercised and released for common shares
Forfeited
399,785
(402,630)
(71,859)
552,500
(526,812)
(74,456)
165,790
(18,778)
-
At December 31, 2021
755,736
935,851
730,949
Vested and exercisable at December 31, 2020
Vested and exercisable at December 31, 2021
583,937
730,949
Share-based compensation expense was $20.9 million and $18.7 million for the years ended December 31, 2021 and 2020,
respectively, and is included in general and administrative expenses.
The fair value of the options granted was estimated at $4.07 and $1.65 per option for the year ended December 31, 2021 and 2020.
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,
2021
6.1%
41.1%
0.5%
3.0
2020
9.1%
31.3%
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.
Note 23 Post-retirement Benefits
a) Defined benefit plans
The Company maintains a funded defined benefit pension plan and an unfunded defined benefit other post-retirement benefits plan
(“OPRB”).
The Company’s defined benefit pension plans are funded based upon the advice of independent actuaries. The Company is required
to file an actuarial valuation of the defined benefit pension plan with the provincial regulator every three years, with the most recent
actuarial valuation filing as at December 31, 2019. The defined benefit plans expose the Company to actuarial risks such as longevity
risk, interest rate risk, and market (investment) risk. Based on valuations by the Company’s actuaries as at December 31, 2021 and
2020, the status of the defined benefit plans is as follows:
77
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
Accrued benefit obligation, January 1
Current service cost
Past service cost
Interest cost
Benefits paid
Actuarial (gain) loss
Other
Accrued benefit obligation, December 31
Fair value of pension plan assets, January 1
Interest on plan assets
Actual contributions
Actual benefits paid
Actuarial gain
Other
Fair value of pension plan assets, December 31
Accrued benefit obligation
Fair value of plan assets
Accrued benefit asset (liability) (1)
Year ended December 31,
2021
2020
Pension
OPRB
Pension
17,255
76
-
416
(707)
(1,072)
4
15,972
14,869
356
626
(707)
1,414
(33)
16,525
(15,972)
16,525
553
4,398
310
-
122
(65)
(671)
-
4,094
-
-
65
(65)
-
-
-
(4,095)
-
(4,094)
16,102
65
-
475
(718)
1,328
3
17,255
14,540
427
46
(718)
595
(21)
14,869
(17,255)
14,869
(2,386)
OPRB
4,650
279
-
157
(173)
(515)
-
4,938
-
-
173
(173)
-
-
-
(4,398)
-
(4,398)
(1)
included on balance sheet within other assets and other liabilities
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
Year ended December 31,
2021
2.9%
3.0%
2020
2.5%
3.0%
The assumed discount rate has an effect on the amounts reported for the defined benefit plan obligation. 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
(2,485)
3,081
b) Defined contribution pension plans
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 $2.9 million and $3.0 million for the year ended December 31, 2021 and 2020,
respectively.
78
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
Note 24 Financial Instruments, Risk Management and Capital Management
a) 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, dividends payable and long-term debt.
Cash and cash equivalents, trade and other receivables, trade payables and accrued charges and dividends payable are recorded at
amortized cost which approximates fair value due to the short term nature of these instruments.
Long-term debt, including the revolving credit facility, are recorded at amortized cost using the effective interest method of
amortization. As at December 31, 2021, the carrying amount of long-term debt was $1,670.0 million less debt discount and issue
costs of $9.4 million and the fair value of long-term debt based on period end trading prices on the secondary market (Level 2) was
$1,704.7 million. As at December 31, 2020, the carrying amount of long-term debt was $1,460.0 million less debt discount and issue
costs of $10.5 million and the fair value of long-term debt based on period end trading prices on the secondary market (Level 2) was
$1,483.9 million.
Financial assets and liabilities are only offset if the Company has the current legal right to offset and intends to settle on a net basis
or settle the asset and liability simultaneously. The following table provides a summary of the Company’s offsetting trade and other
receivables and trade payables and accrued charges:
Gross amounts
Amount offset
Net amount
December 31
2021
2020
Trade and
other
receivables
Trade payable
and accrued
charges
Trade and
other
receivables
Trade payable
and accrued
charges
980,772
(827,370)
1,004,066
(827,370)
474,759
(371,830)
482,104
(371,830)
153,402
176,696
102,929
110,274
b) Derivative financial instruments (recurring fair value measurements)
The following is a summary of the Company’s risk management contracts outstanding:
As at December 31, 2021
Commodity futures
Commodity swaps
WTI differential futures
Foreign currency forwards
Financial assets (carried at fair value)
Commodity futures
Commodity swaps
WTI differential futures
Foreign currency forwards
Carrying
Amount
Fair Value
Level 1
Level 2
Level 3
1,290
36
645
2,505
4,476
9,410
264
1,282
755
1,290
36
645
-
1,972
9,410
264
1,282
-
-
-
2,505
2,505
-
-
-
755
755
-
-
-
-
-
-
-
-
-
-
-
Financial Liabilities (carried at fair value)
11,711
10,956
Long-term debt (carried at amortized cost)
1,660,609
-
1,704,673
79
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
As at December 31, 2020
Commodity futures
Commodity swaps
WTI differential futures
Foreign currency forwards
Financial assets (carried at fair value)
Commodity futures
Commodity swaps
WTI differential futures
Foreign currency forwards
Financial Liabilities (carried at fair value)
Carrying
Amount
Fair Value
Level 1
Level 2
Level 3
24
1,952
488
815
3,279
6,645
1,338
1,828
343
10,154
24
-
488
-
512
6,645
-
1,828
-
8,473
-
1,952
-
815
2,767
-
1,338
-
343
1,681
-
-
-
-
-
-
-
-
-
-
-
Long-term debt (carried at amortized cost)
1,449,481
-
1,483,886
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.
The impact of the movement in the fair value of financial instruments has been recognized within cost of sales in the consolidated
statements of operations.
i) Commodity financial instruments
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) Foreign currency forward
The Company enters into foreign currency forwards from time to time to manage the foreign currency risk pertaining to future
transactions and cash flows denominated in foreign currencies, primarily in US$.
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:
o
o
The fair value of commodity 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 forward contracts is determined using the forward exchange rates at the measurement
date, with the resulting value discounted back to present values.
c) 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.
80
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
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.
i) Foreign currency 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.
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:
U.S. Dollar Forwards
Favorable 5% change
Unfavorable 5% change
December 31,
2021
11,402
(11,402)
2020
3,936
(3,936)
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.
ii) 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. A 1%
increase or decrease in interest rates would, based on current rates and balances, decrease or increase the Company’s net income
by $2.7 million (as at December 31, 2020 – $0.6 million).
iii) 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
iv) Credit risk
December 31,
2021
2020
21,155
(21,155)
12,162
(12,162)
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.
81
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
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. Historical loss
rates are adjusted to reflect current and forward-looking information on macroeconomic factors affecting the ability of customers to
settle the receivables. The provision is based on an individual account-by-account analysis and prior credit history.
The carrying amount of the Company’s net trade and other receivables represents the maximum counterparty credit exposure,
without taking into account any security held. The Company defines current as outstanding accounts receivable under 30 days past
due. The Company believes the unimpaired amounts that are past due by greater than 30 days are fully collectible based on historical
default rates of customers and assessment of counterparty credit risk through established credit management techniques as
discussed above. The following table details the aging of trade and other receivables:
Current
Past due 31-60 days
Past due over 60 days
Total trade and other receivables
December 31,
2021
662,302
1,437
3,849
667,588
2020
330,072
604
2,965
333,641
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.
v) 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. As at December 31, 2021, the Company had a revolving credit facility of $750.0 million and two credit
facilities totaling $150.0 million. As at December 31, 2021, $270.0 million (December 31, 2020 – $60.0 million) was drawn against the
revolving credit facility and the Company had outstanding issued letters of credit of $35.0 million (December 31, 2020 – $34.7 million).
The terms of the unsecured senior notes, unsecured hybrid 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. As at December
31, 2021 the Company was in compliance with these covenants.
Set out below is a maturity analyses of certain of the Company’s financial contractual obligations as at December 31, 2021. The
maturity dates are the contractual maturities of the obligations and the amounts are the contractual undiscounted cash flows.
On demand or
within one
year
Between one
and three years
Between three
and five years
After five
years
Total
Trade payables and accrued charges
(excluding derivative financial
instruments and accrued interest)
Dividend payable
Long-term debt
Interest on long-term debt
Financial instruments liabilities
Lease liabilities
658,091
51,319
-
48,350
11,711
30,299
-
-
-
96,700
-
38,018
-
-
865,000
85,420
-
16,643
-
-
1,075,000
763,653
-
2,131
658,091
51,319
1,940,000
994,123
11,711
87,091
799,770
134,718
967,063
1,840,784
3,742,335
82
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
d) Capital management
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,
lease liabilities 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 lease liabilities) less cash and cash equivalents. Total capital is calculated as net debt plus share capital as shown in the
consolidated balance sheet.
Total financial liability borrowings
Less: cash and cash equivalents
Net debt (1)
Total share capital
Total capital
December 31,
2021
2020
1,742,388
(62,688)
1,679,700
1,552,223
(53,676)
1,498,547
1,997,255
1,977,104
3,676,955
3,475,651
(1) The unsecured hybrid notes are included in the above total capital calculation in accordance with the Company’s view of its capital structure which includes
shareholders’ equity and long-term debt. The unsecured hybrid notes, and associated interest payments are excluded from the definition of consolidated debt
for the purposes of debt to capitalization as well as the consolidated interest coverage covenant ratios.
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 are sufficient to service this debt and support ongoing operations.
83
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
Note 25 Commitments and Contingencies
a) Commitments
Lease obligations primarily relate to office leases, rail cars, vehicles, field buildings, various equipment as well as certain commitments
related to terminal services arrangements. The minimum payments required under these commitments, net of sub-lease income,
are as follows:
2022
2023
2024
2025
2026 and later
49,044
36,659
23,459
12,382
9,842
131,386
b) Commitments to Equity Accounted Investees
The Company does not have a current commitment to fund additional construction for its equity investments as at December 31,
2021.
c) Contingencies
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.
Note 26 Subsequent Events
On February 22, 2022, the Board declared a quarterly dividend of $0.37 per common share, an increase of $0.02 per common share,
for the first quarter on its outstanding common shares. The dividend is payable on April 14, 2022 to shareholders of record at the
close of business on March 31, 2022.
84
Gibson Energy Inc.
Notes to Consolidated Financial Statements
(Amounts in thousands of Canadian dollars, except per share amounts)
Note 27 Supplemental Cash Flow Information
Year ended December 31,
Note
2021
2020
Cash flows from operating activities
Net income
Adjustments:
Finance costs, net
Income tax expense
Depreciation and impairment of property, plant and equipment
Depreciation of right-of-use asset
Amortization and impairment of intangible assets
Share-based compensation
Share of profit from investments in equity accounted investees
Distributions from equity accounted investees
Gain on sale of property, plant and equipment
Provisions
Net loss on fair value movement of financial instruments
Other
Changes in items of working capital:
Trade and other receivables
Inventories
Other current assets
Trade payables and accrued charges
Contract liabilities
Income tax payment, net
Net cash inflow from operating activities
8
9
11
22
10
8
16
5
6
15
145,053
121,309
61,344
36,184
136,068
29,123
8,670
23,335
(6,083)
4,909
(2,942)
(168)
1,952
(7,814)
284,578
(335,176)
(92,113)
8,703
249,062
(13,579)
(183,103)
96,420
29,369
124,057
37,962
7,403
21,144
(2,670)
691
(853)
3,391
9,618
(7,399)
319,133
101,351
(26,361)
5,569
(32,266)
(21,007)
27,286
(29,722)
(8,177)
216,806
459,551
85
CORPORATE INFORMATION
MANAGEMENT
Steve Spaulding
President & Chief Executive Officer
Sean Brown
SVP & Chief Financial Officer
Sean Wilson
SVP & Chief Administrative Officer
Kyle DeGruchy
SVP. Supply & Marketing
Omar Saif
SVP. Operations & Engineering
DIRECTORS
James M. Estey
Chair of the Board
Douglas P. Bloom
James J. Cleary
Judy E. Cotte
Heidi L. Dutton
Juliana L. Lam
John L. Festival
Marshall L. McRae
Peggy C. Montana
Mary Ellen Peters
Steven R. Spaulding
HEAD OFFICE
1700, 440-2nd Ave SW
Calgary, AB Canada T2P5E9
Phone: (403) 206-4000
Fax: (403) 206-4001
Website: www.gibsonenergy.com
AUDITORS
PricewaterhouseCoopers LLP
BANKERS
Royal Bank of Canada
BMO Capital Markets
LEGAL COUNSEL
Bennett Jones LLP
TRUSTEES, REGISTRAR
& TRANSFER AGENT
Computershare Trust
Company of Canada
Calgary, Alberta, Canada
BNY Mellon
New York, New York. U.S.
STOCK EXCHANGE
Toronto Stock Exchange
Trading Symbol: GEI
INVESTOR RELATIONS
Mark Chyc-Cies
VP. Strategy, Planning & Investor Relations
Phone: (403) 776-3146
Email: investor.relations@gibsonenergy.com
MEDIA INQUIRIES
Phone: (403) 476-6334
Email: communications@gibsonenergy.com