Gibson Energy
Annual Report 2022

Plain-text annual report

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, 2022 and 2021, 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, 2022 and 2021; 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, 2022. 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 Refer to note 3 – Significant accounting policies and note 12 – Goodwill to the consolidated financial statements. The Company had goodwill of $362.1 million as at December 31, 2022. 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. Our approach to addressing the matter involved the following procedures, among others:   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 - 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. 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 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 Management is responsible for the other information. The other information comprises the Management’s Discussion and Analysis and the information, other than the consolidated financial statements and our auditor’s report thereon, included in the 2022 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 21, 2023 Gibson Energy Inc. Consolidated Balance Sheets (Amounts in thousands of Canadian dollars, except per share amounts) Note As at December 31, 2021 2022 Assets Current assets Cash and cash equivalents Trade and other receivables Inventories Income taxes receivable Prepaid and other assets Net investment in finance leases 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 Dividends payable Contract liabilities Lease liabilities Non-current liabilities Long-term debt Lease liabilities Provisions Other long-term liabilities Deferred income tax liabilities Total liabilities Equity Share capital Contributed surplus Accumulated other comprehensive income Accumulated deficit Total liabilities and equity 5 6 18 7 8 9 7 10 18 11 12 15 17 14 13 14 16 18 17 83,596 464,305 257,754 273 9,682 5,914 821,524 1,556,427 47,739 1,607 192,318 165,111 19,141 29,063 362,068 2,373,474 3,194,998 574,568 52,896 21,029 37,196 685,689 1,646,772 34,504 145,057 2,164 107,796 1,936,293 2,621,982 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 1,964,515 60,399 48,233 (1,500,131) 573,016 3,194,998 1,997,255 66,002 24,310 (1,443,441) 644,126 3,431,760 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) (signed) “Marshall L. McRae” Marshall L. McRae (Director) 1 Gibson Energy Inc. Consolidated Statements of Operations (Amounts in thousands of Canadian dollars, except per share amounts) Revenue Cost of sales Gross profit Share of profit from equity accounted investees General and administrative expenses Other operating income, 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 Note 2 for reclassification of prior period results See accompanying notes to the consolidated financial statements Note 19 20, 21 10 20, 21, 22 13 18 17 Year ended December 31, 2021* 2022 11,035,411 10,640,976 394,435 7,211,148 6,912,820 298,328 (20,926) 70,348 (10,061) 355,074 64,939 290,135 66,890 223,245 (6,083) 68,812 (6,982) 242,581 61,344 181,237 36,184 145,053 1.53 1.50 0.99 0.97 2 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 statement of operations Remeasurement of post-employment benefit obligation, net of tax Other comprehensive income, net of tax Comprehensive income See accompanying notes to the consolidated financial statements Year ended December 31, 2021 2022 223,245 145,053 21,593 2,330 23,923 (2,912) 3,156 244 247,168 145,297 3 Gibson Energy Inc. Consolidated Statements of Changes in Equity (Amounts in thousands of Canadian dollars, except per share amounts) Share Capital (note 17) Accumulated Other Contributed Comprehensive Accumulated Deficit Surplus Income Total Equity Balance – January 1, 2021 1,977,104 61,820 24,066 (1,383,340) 679,650 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 per common share) - - - - 1,172 2,147 16,832 - - - 20,905 109 - (16,832) - 244 244 - - - - 145,053 - 145,053 - - - - 145,053 244 145,297 20,905 1,281 2,147 - - - - (205,154) (205,154) Balance – December 31, 2021 1,997,255 66,002 24,310 (1,443,441) 644,126 Balance – January 1, 2022 1,997,255 66,002 24,310 (1,443,441) 644,126 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 ($1.48 per common share) Repurchase of shares under normal course issuer bid (“NCIB”) - - - - 680 24,068 24,082 - (81,570) - - - 18,229 250 - (24,082) - - - 23,923 23,923 - - - - - - 223,245 - 223,245 - - - - 223,245 23,923 247,168 18,229 930 24,068 - (215,446) (215,446) (64,489) (146,059) Balance – December 31, 2022 1,964,515 60,399 48,233 (1,500,131) 573,016 See accompanying notes to the consolidated financial statements 4 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 Lease payments (Repayment of) draws on credit facility, net Repurchase of shares under NCIB 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, 2021 2022 27 27 27 8 10 14 13 17 223,245 293,491 119,197 (37,621) 598,312 (140,381) (2,259) 8,240 (134,400) (213,869) (59,249) 24,068 (35,397) (15,000) (146,059) (445,506) 18,406 2,502 62,688 145,053 284,578 (183,103) (29,722) 216,806 (117,672) (29,210) 19,822 (127,060) (203,329) (54,751) 2,147 (36,694) 209,672 - (82,955) 6,791 2,221 53,676 Cash and cash equivalents – end 83,596 62,688 See accompanying notes to the consolidated financial statements See notes 13, 14 and 17 for reconciliation of movement of financial liabilities and equity. 5 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, 2022: Name Gibson (U.S.) Holdco Corp. Name Moose Jaw Refinery Partnership Gibson Energy Infrastructure Partnership Gibson (U.S.) Holdco Corp. Nature of entity Holding Company Nature of business Crude oil processing Marketing and Infrastructure Marketing and Infrastructure The Company is a Canadian-based liquids infrastructure company with its principal businesses consisting of storage, optimization, processing, and gathering of liquids and refined products. The Company’s reportable segments are: Infrastructure, which includes a network of liquids 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 liquids and refined products out of the Western Canadian Sedimentary Basin; gathering pipelines, which are connected to the Hardisty Terminal; a crude oil processing facility in Moose Jaw, Saskatchewan (the “Moose Jaw Facility”); and an infrastructure position located in the United States (“U.S.”). The Infrastructure segment also includes the Company’s share of equity pickup from equity accounted investees. Select assets are 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 revenues are earned and expenses are incurred; (b) whose operating results are regularly reviewed by the Company’s chief operating decision maker to make decisions about resources to be allocated to each segment and assess its performance; and (c) for which discrete financial information is available. The Company has aggregated certain operating segments into the above noted reportable segments through examination of the Company’s performance which is based on the similarity of the goods and services provided and economic characteristics exhibited by these operating segments. Accounting policies used for segment reporting are consistent with the accounting policies used for the preparation of the Company’s consolidated financial statements. Inter-segmental transactions are eliminated upon consolidation and the Company does not recognize margins on inter-segmental transactions. 6 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, 2022 Infrastructure Marketing Total Revenue External Inter-segmental External and inter-segmental 318,372 207,438 525,810 10,717,039 111,195 10,828,234 11,035,411 318,633 11,354,044 Segment profit 434,998 122,020 557,018 Corporate and other reconciling items: Depreciation and impairment of property, plant and equipment Depreciation and impairment of right-of-use assets Amortization of intangible assets General and administrative Stock based compensation Corporate foreign exchange gain Interest expense, net Net income before income tax Income tax expense Net income Statement of operations 107,353 29,184 7,942 40,196 20,543 (3,274) 64,939 290,135 66,890 223,245 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 and impairment 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 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 7 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, 2021 2022 94,203 16,430 6,592 168,152 2,308 5,937 117,225 176,397 Based on the location of the end user, approximately $1,706.7 million and $1,462.4 million of revenue was from customers in the U.S. for the years ended December 31, 2022, and 2021, 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 $230.2 million and $220.2 million in the U.S. as at December 31, 2022, and 2021, respectively. c) Major Customers Primarily in connection with the marketing business, the Company had two customers which individually accounted for more than 10% of revenue for the year ended December 31, 2022. These customers accounted for $1,424.7 million and $1,207.8 million of revenue, 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. For the year ended December 31, 2022, share of profit from equity accounted investees has been presented separately in the consolidated statement of operations, which was previously presented within the cost of sales. Comparative information has been updated to reflect the current presentation. These consolidated financial statements were approved for issuance by the Company’s board of directors (the “Board”) on February 21, 2023. 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. 8 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) 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 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. 9 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 Technology, software and license 6 – 10 years 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 Equipment Pipelines and connections Tanks Plant Disposal wells 10 – 20 years 5 – 40 years 8 – 50 years 20 – 40 years 10 – 35 years 20 – 25 years The expected useful lives, method of depreciation and residual values of property, plant and equipment are reviewed on an annual basis and, if necessary, changes are accounted for prospectively. During 2022, certain expected useful lives were revised, as disclosed in note 8 of the consolidated financial statements. 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. 10 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) 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. i) 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. 11 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) j) 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. k) 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. 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. l) 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. 12 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) 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. 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. m) 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. 13 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) 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. n) 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 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. o) 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. p) 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. 14 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) q) 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. r) 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. s) 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. 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. 15 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) t) 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. u) 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. 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. 16 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) 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 substantially all of the significant risks and rewards of ownership are transferred to the customer or remain with the Company, to appropriately account for the arrangement as a finance or operating lease. These judgements can be significant as to how the Company classifies amounts related to the arrangements as property, plant and equipment or net investment in finance lease on the balance sheet. The Company has determined, based on the terms and conditions of these arrangements, that the substantial risks and rewards to the ownership of certain storage tanks have been transferred to the customer, and accordingly, these storage tanks have been recognized as an investment in finance lease. Current and deferred taxation The computation of the Company’s income tax expense involves the interpretation of applicable tax laws and regulations in many jurisdictions. The resolution of tax positions taken by the Company can take significant time to complete and in some cases it is difficult to predict the ultimate outcome. In addition, the Company has carry-forward tax losses in certain taxing jurisdictions that are available to offset against future taxable profit. This involves an assessment of when those deferred tax assets are likely to be realized, and a judgment as to whether or not there will be sufficient taxable profits available to offset 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. v) Change in accounting estimates During the fourth quarter of 2022, the Company performed an annual review of the useful lives estimates for the property, plant, and equipment assets. The review was based on the current conditions of the company’s assets, operational history and economic environment where the Company operates, along with the results of asset integrity assessments conducted over the course of past several years. As a result of this review, effective October 1, 2022, the useful life estimates of select assets was revised, generally resulting in longer estimates lives for the Company’s storage and transportation infrastructure and associated equipment, as outlined in note 8 – Property, Plant and Equipment. The adjustment was treated as a change in accounting estimate and accounted for prospectively, resulting in a decrease in the pre- tax depreciation expense of $11.2 million for the fourth quarter of 2022 with a similar quarterly impact expected for the 2023 fiscal year. Note 4 Changes in Accounting Policies and Disclosures New interpretations and amended standards adopted by the Company: The Company adopted the following new and revised standards, along with any consequential amendments. These changes were made in accordance with applicable transitional provisions and did not have a material impact on the on the consolidated financial statements. 17 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) o o o The annual improvements process addresses issues in the 2018-2021 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. 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 12 – Income Taxes (“IAS 12”), has been amended to separately 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 annual periods beginning on or after January 1, 2023; and 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, 2024. 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 2022 445,832 (272) 445,560 4,170 12,940 1,635 648,729 (262) 648,467 4,476 14,008 637 464,305 667,588 Year ended December 31, 2021 2022 (262) (485) 485 (10) (272) (566) 186 120 (2) (262) 18 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) Note 6 Inventories Crude oil, natural gas liquids and diluent Asphalt Wellsite fluids and distillate December 31, 2021 2022 201,293 42,153 14,308 194,511 48,518 12,102 257,754 255,131 The cost of the inventory sold included in cost of sales was $10,355.0 million and $6,639.0 million for the years ended December 31, 2022, and 2021, respectively. 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 2022 627,565 67,951 (497,284) 198,232 5,914 499,939 68,464 (395,833) 172,570 8,883 Net investment in finance lease: non-current portion 192,318 163,687 The minimum lease receivables are expected to be as follows: 2023 2024 2025 2026 2027 2028 and later 39,419 38,906 39,172 39,445 39,727 430,896 19 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) Note 8 Property, Plant and Equipment Cost: At January 1, 2022 Additions and adjustments Disposals Reclassified from (to) net investment in finance leases, net Reclassifications Change in decommissioning provision Effect of movements in exchange rates Pipelines and Land and Buildings Connections 134,335 502 (1,764) - 17,710 (235) 451 494,245 33,040 - - 6,307 (3,352) 6,452 Tanks 823,434 30,346 (91) 2,629 (2,512) (22,411) 1,282 Plant, Equipment and Other Work in Progress Total 911,950 78,428 (24,169) (42,099) (21,505) (5,694) 3,251 136,399 (28,014) - 2,500,363 114,302 (26,024) - - - 1,249 (39,470) - (31,692) 12,685 At December 31, 2022 150,999 536,692 832,677 900,162 109,634 2,530,164 Accumulated depreciation and impairment: At January 1, 2022 Depreciation and adjustments Disposals Reclassifications Effect of movements in exchange rates 35,200 5,658 (471) 15,052 60 151,747 21,117 - 3,156 594 219,540 26,781 (76) (1,904) 284 481,240 53,515 (22,610) (16,304) 1,158 At December 31, 2022 55,499 176,614 244,625 496,999 - - - - - - 887,727 107,071 (23,157) - 2,096 973,737 Carrying amounts: At January 1, 2022 At December 31, 2022 99,135 95,500 342,498 360,078 603,894 588,052 430,710 403,163 136,399 109,634 1,612,636 1,556,427 Pipelines Land and and Buildings Connections Plant, Equipment and Other Tanks Work in Progress Total Cost: At January 1, 2021 Additions and adjustments Disposals Reclassifications Change in decommissioning provision Effect of movements in exchange rates At December 31, 2021 123,661 5,155 (14) 5,560 - (27) 482,350 13,662 - 2,009 (3,092) (684) 823,871 12,113 (334) 2,151 (14,271) (96) 922,220 31,596 (26,663) 23,613 (38,057) (759) 80,021 89,892 - (33,333) - (181) 2,432,123 152,418 (27,011) - (55,420) (1,747) 134,335 494,245 823,434 911,950 136,399 2,500,363 20 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 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 - - - - - Total 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 Additions to property, plant and equipment include the capitalization of interest of $2.3 million and $1.4 million for the years ended December 31, 2022, and 2021, respectively. Amounts in relation to infrastructure assets are under operating lease arrangements. Change in accounting estimates During the fourth quarter of 2022, the Company performed an annual review of the useful lives estimates for the property, plant, and equipment assets. The review was based on the current conditions of the company’s assets, operational history and economic environment where the Company operates, along with the results of asset integrity assessments conducted over the course of past several years. As a result of this review, effective October 1, 2022, the following changes were made to the Company’s estimates of the useful lives for various asset groups: Previous useful lives estimates Revised useful lives estimates Buildings Equipment Pipelines and connections Tanks Plant 10 – 20 years 3 – 20 years 8 – 30 years 20 – 30 years 10 – 25 years 10 – 20 Years 5 – 40 Years 8 – 50 Years 20 – 40 Years 10 – 35 Years The adjustment was treated as a change in accounting estimate and accounted for prospectively, resulting in a decrease in the pre- tax depreciation expense of $11.2 million for the fourth quarter of 2022, with a similar quarterly impact expected for the 2023 year. 21 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) Note 9 Right-of-use Assets Cost: At January 1, 2022 Additions and adjustments Disposals Effect of movements in exchange rates At December 31, 2022 Accumulated depreciation and impairment: At January 1, 2022 Depreciation and adjustments Disposals Reclassification Effect of movements in exchange rates At December 31, 2022 Carrying amounts: At January 1, 2022 At December 31, 2022 Cost: At January 1, 2021 Additions and adjustments Disposals Effect of movements in exchange rates Buildings Rail Cars Other Total 44,749 117 (490) 59 44,435 20,322 4,941 (464) - 31 24,830 24,427 19,605 100,810 15,584 (5,622) - 6,059 3,777 - 336 151,618 19,478 (6,112) 395 110,772 10,172 165,379 74,741 15,573 (5,622) 44 - 84,736 26,069 26,036 3,973 3,959 - (44) 186 8,074 2,086 2,098 99,036 24,473 (6,086) - 217 117,640 52,582 47,739 Buildings Rail Cars Other Total 49,500 594 (5,326) (19) 110,835 10,446 (20,471) - 12,764 3,008 (9,770) 57 173,099 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 29,148 24,427 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 37,433 26,069 2,614 2,086 69,195 52,582 22 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) Note 10 Investment in Equity Accounted Investees Ownership % Share of Profit for the year Investment in Equity Accounted Investees at December 31, 2021 2022 December 31, 2021 2022 Hardisty Energy Terminal Limited Partnership (“HET”) Zenith Energy Terminals Joliet Holdings LLC (“Zenith”) 50% 36% 18,572 2,354 5,475 608 142,134 151,378 22,977 21,337 20,926 6,083 165,111 172,715 The Company, as the operator, holds a 50% interest in HET, operating a Diluent Recovery Unit (“DRU”) adjacent to the Company’s Hardisty Terminal. The DRU started operations in the third quarter of 2021. The Company also holds 36% interest in Zenith which owns and operates a crude-by-rail and storage terminal and a pipeline connection to a common carrier crude oil pipeline in Joliet, Illinois. The Company’s share of profit or loss from these investments is included within the Infrastructure segment’s profit. During the year ended December 31, 2022, the Company contributed $2.3 million (year ended December 31, 2021 – $29.2 million) to the equity investments. Noted below is summarized financial information (presented at 100%): 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 (1) Non-current assets (2) Current liabilities Non-current liabilities (3) (1) (2) (3) Includes cash and cash equivalents of $18.9 million (2021: $31.3 million) Includes property, plant and equipment (net) of $331.9 million (2021: $345.6 million) Comprise of provisions of $16.3 million (2021: $22.9 million) Year ended December 31, 2021 2022 77,229 6,629 19,347 15,482 (7,893) 43,664 20,926 2022 21,609 333,110 22,475 16,323 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 23 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) Note 11 Intangible Assets Technology, Software Brands Relationships Contracts Agreements and License Long-term Customer Non-compete Customer Total Cost: At January 1, 2022 Additions and adjustments Disposals Effect of movements in exchange rates 22,700 - - 57,851 - (19,442) 59,346 - (35,388) - 792 942 At December 31, 2022 22,700 39,201 24,900 Accumulated amortization and impairment: At January 1, 2022 Amortization and adjustments Disposals Effect of movements in exchange rates 22,700 - - 57,851 - (19,442) 46,538 2,029 (35,388) - 792 128 At December 31, 2022 22,700 39,201 13,307 7,506 - (6,836) 32 702 7,506 - (6,836) 32 702 54,839 1,892 (1,162) 202,242 1,892 (62,828) 12 1,778 55,581 143,084 33,292 5,913 (1,085) 167,887 7,942 (62,751) (9) 943 38,111 114,021 Carrying amounts: At January 1, 2022 At December 31, 2022 - - - - 12,808 11,593 - - 21,547 17,470 34,355 29,063 Technology, Software Brands Relationships Contracts Agreements and License Long-term Customer Non-compete Customer Total Cost: At January 1, 2021 Additions and adjustments Disposals Effect of movements in exchange rates 22,700 - - 57,996 - - 59,774 - - - (145) (428) 7,559 - - (53) 74,902 7,441 (27,588) 222,931 7,441 (27,588) 84 (542) At December 31, 2021 22,700 57,851 59,346 7,506 54,839 202,242 Accumulated amortization and impairment: At January 1, 2021 Amortization and adjustments Disposals Effect of movements in exchange rates 22,700 - - 57,996 - - 44,952 1,882 - - (145) (296) 7,559 - - (53) 53,943 6,788 (27,520) 187,150 8,670 (27,520) 81 (413) At December 31, 2021 22,700 57,851 46,538 7,506 33,292 167,887 Carrying amounts: At January 1, 2021 At December 31, 2021 - - - - 14,822 12,808 - - 20,959 21,547 35,781 34,355 24 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) Note 12 Goodwill 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 2022 195,662 33,834 89,017 43,555 362,068 195,662 31,641 89,017 43,555 359,875 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, 2022, $325.6 million, net of impairment, relates to goodwill recognized on the acquisition of the Company on December 12, 2008. On November 30, 2022, 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. Key assumptions used in 2022 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 5 to 13. Cash flows were projected based on past experience, actual operating results and the 2023 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 segment due to the absence of sufficient historical results. The model calculated the present value of the estimated future earnings of the above stated operating segment. 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 11.5% 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 a Level 3 fair value based on the use of unobservable inputs. 25 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) 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 2022 2027 2025 2027 2029 2080 255,000 325,000 325,000 500,000 250,000 (8,228) 270,000 325,000 325,000 500,000 250,000 (9,391) 1,646,772 1,660,609 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 interest. During the second quarter of 2022, the Company extended the maturity date of the revolving credit facility from April 2026 to April 2027. Subsequent to the end of the year, the Company extended the maturity date of the sustainability-linked revolving credit facility from April 2027 to February 2028, amongst other amendments. As at December 31, 2022, the Company had the ability to utilize borrowings under the revolving credit facility of $495.0 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 $37.5 million (December 31, 2021 – $35.0 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 26 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) 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 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, 2022, the Company was in compliance with all of its covenants. The components of finance costs are as follows: Interest expense Capitalized interest Interest expense, finance lease Interest (income) expense Reconciliation of cash flows arising from financing activities Opening balance (Repayment of) proceeds from issuance of long-term debt, net Net cash provided by financing activities from financing activities Deferred financing costs and other Closing balance Note 8 14 Year ended December 31, 2021 2022 64,860 (2,304) 2,908 (525) 64,939 58,838 (1,432) 3,656 282 61,344 Year ended December 31, 2021 2022 1,660,609 (15,000) 1,645,609 1,163 1,449,481 209,672 1,659,153 1,456 1,646,772 1,660,609 27 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) 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 2022 81,779 19,382 - 2,908 (35,397) 3,028 71,700 37,196 34,504 December 31, December 31, 2021 102,742 12,514 (19) 3,656 (36,694) (420) 81,779 29,748 52,031 The Company incurs lease payments primarily related to rail cars, head office facilities and vehicles. 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. 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 2022 530,212 15,447 969 8,227 13,969 2,291 3,453 December 31, 2021 630,329 17,506 1,652 11,711 13,903 2,516 6,091 574,568 683,708 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 Effect of movements in exchange rates Closing balance Note 8 8 2022 180,270 (7,204) 5,523 - 7,772 (45,437) 3,632 501 December 31, December 31, 2021 236,952 (4,135) 4,979 (139) (34,478) (26,118) 3,284 (75) 145,057 180,270 28 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) The Company currently estimates the total undiscounted future value amount, including an inflation factor of 6.0% for 2023, 4.0% for 2024 and 2.0% thereafter, of estimated cash flows to settle the future liability for asset retirement and remediation obligations to be approximately $293.4 million and $267.2 million at December 31, 2022, and 2021, respectively. In order to determine the current provision related to these future values, the estimated future values were discounted using an average risk-free rate of 3.3% and 1.7% at December 31, 2022, and 2021, 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 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 around 26 years. A one percent increase or decrease in the risk-free rate would decrease or increase the provision by $26.5 million (December 31, 2021 – $40.0 million), respectively, with a corresponding adjustment to property, plant and equipment. 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, 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, 2022 or 2021. 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, 2022, and 2021. At January 1, 2021 Number of Common Shares Amount 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 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 Purchased common shares under NCIB 1,321,639 - 1,001,058 (5,988,400) 24,068 680 24,082 (81,570) At December 31, 2022 142,961,379 1,964,515 29 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) A dividend of $0.37 per share, declared on October 31, 2022, was paid on January 17, 2023. For the year ended December 31, 2022, the Company declared total dividends of $1.48 per common share. Under the NCIB, the Company is permitted to purchase for cancellation up to 7.5% of the public float of common shares or 8,760,553 common shares, in accordance with the applicable rules and policies of the TSX and applicable securities laws. During the year ended December 31, 2022, the Company extended its NCIB from August 31, 2022, to August 30, 2023. During the year ended December 31, 2022 the Company purchased 5,988,400 common shares at a weighted average price of $24.39 per common share for a total cost of $146.1 million. Retained deficit was credited by $64.5 million, representing the excess of the purchase price of common shares over their average carrying value. Under the currently allowable NCIB limit, the Company has repurchased 3,529,600 common shares as at December 31, 2022, leaving 5,230,953 common shares available for repurchase prior to August 30, 2023. 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 2022 146,221,479 2,592,961 146,344,843 2,780,715 148,814,440 149,125,558 The dilutive effect of 2.6 million (December 31, 2021 – 2.8 million) stock options and other awards for the year ended December 31, 2022, have been included in the determination of the weighted average number of common shares outstanding. The impact of 0.1 million (December 31, 2021 – 0.1 million) for the year ended December 31, 2022, 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 Origination and reversal of temporary differences Total deferred tax expense Net income tax expense Year ended December 31, 2022 2021 46,310 (3,236) 43,074 21,672 2,144 27,548 (2,502) 25,046 8,472 2,666 23,816 11,138 66,890 36,184 30 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) 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 Others Net income tax expense Effective income tax rate 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 and contributed surplus Tax credited directly to equity Closing balance Year ended December 31, 2022 2021 290,135 181,237 23.40% 67,892 120 (762) (360) 66,890 23.05% 23.45% 42,500 (4,996) (1,282) (38) 36,184 19.97% Year ended December 31, 2022 2021 15,564 3,577 19,141 105,864 1,932 107,796 88,655 24,300 3,106 27,406 92,996 1,159 94,155 66,749 Year ended December 31, 2022 2021 66,749 (1,692) 23,816 462 (680) 88,655 54,778 202 11,138 1,803 (1,172) 66,749 31 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) 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, 2021 Charged to the statement of operations Charged to other comprehensive income Effect of changes in foreign exchange rates Tax charged directly to equity Non-capital Losses Carried Forward Asset Retirement Obligations Goodwill, Intangibles, and Other 34,856 (3,366) - 293 - 24,761 (5,238) - 20 - 27,812 (8,577) (1,803) (371) 1,172 Total 87,429 (17,181) (1,803) (58) 1,172 At December 31, 2021 31,783 19,543 18,233 69,559 Charged to the statement of operations Charged to other comprehensive income Effect of changes in foreign exchange rates Tax charged directly to equity (2,733) - 1,982 - 178 - 81 - 5,301 (462) 261 680 2,746 (462) 2,324 680 At December 31, 2022 31,032 19,802 24,013 74,847 Deferred tax liabilities At January 1, 2021 (Credited) / charged to the statement of operations Effect of changes in foreign exchange rates Investments in Equity Accounted Investees - (4,407) - Property, Plant and Equipment and Other (142,207) 10,450 (144) Total (142,207) 6,043 (144) At December 31, 2021 (4,407) (131,901) (136,308) Credited to the statement of operations Effect of changes in foreign exchange rates (9,645) - (16,917) (632) (26,562) (632) At December 31, 2022 (14,052) (149,450) (163,502) Income tax losses carry forward At December 31, 2022, and 2021, the Company had losses available to offset income for tax purposes of $136.9 million and $140.0 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, 2022, the Company has $136.9 million of the losses available in the U.S. that expire as follows: December 31, 2035 December 31, 2036 December 31, 2037 December 31, 2039 and beyond 6,883 64,039 13,343 52,668 136,933 No income tax liability has been recognized in respect of temporary differences associated with investments in subsidiaries, except for 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. 32 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) 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, 2021 2022 10,717,039 164,519 10,881,558 153,853 6,897,328 131,908 7,029,236 181,912 11,035,411 7,211,148 During the year ended December 31, 2022, the Company recognized $31.7 million (2021 – $45.4 million) of revenue which were included in the contract liability balance at the beginning of the period. Year ended December 31, 2022 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 128,581 35,938 - - 164,519 - - - - - 8,855,201 155,123 9,010,324 1,268,342 438,373 1,706,715 128,581 35,938 8,855,201 155,123 9,174,843 1,268,342 438,373 1,706,715 Total revenue from contracts with customers 164,519 10,717,039 10,881,558 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 Total revenue from contracts with customers 84,446 67,343 - - 151,789 - 14 14 151,803 - - 5,290,736 124,313 5,415,049 1,155,324 307,060 1,462,384 6,877,433 84,446 67,343 5,290,736 124,313 5,566,838 1,155,324 307,074 1,462,398 7,029,236 33 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) Note 20 Depreciation, Amortization and Impairment Depreciation and impairment of property, plant and equipment Depreciation and impairment of right-to-use assets Amortization and impairment of intangible assets Depreciation, amortization and impairment have been expensed as follows: Note 8 9 11 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 2022 107,353 29,184 7,942 144,479 136,068 29,123 8,670 173,861 Year ended December 31, 2021 2022 135,111 9,368 144,479 162,920 10,941 173,861 Year ended December 31, 2021 2022 82,146 4,434 20,543 1,807 78,839 3,634 23,335 1,960 108,930 107,768 Year ended December 31, 2021 2022 63,959 44,971 108,930 62,079 45,689 107,768 Key management includes the Company’s directors and senior executive officers. Compensation awarded to key management was: Salaries and wages Post-employment benefits Share-based compensation Year ended December 31, 2021 2022 6,287 105 9,012 15,404 6,159 92 10,846 17,097 34 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) Note 22 Share-based Compensation The Company has established an equity incentive plan which permits the award of stock options, RSUs, PSUs and DSUs for executives, directors, employees, and consultants of the Company. Stock options provide the holder with the right to exercise an option to purchase a common share, upon vesting, at a price determined on the date of grant. RSUs give the holder the right to receive, upon vesting, either a common share or a cash payment, subject to consent of the Board, or its equivalent in fully paid common shares equal to the fair market value of the Company’s common shares at the date of such payment. The RSUs granted in 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 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, 2022, common share awards available to grant under the equity incentive plan are approximately 3.0 million. A summary activity under the equity incentive plan is as follows: At January 1, 2021 Granted Exercised and released for common shares Forfeited At December 31, 2021 Granted Exercised and released for common shares Forfeited At December 31, 2022 Vested and exercisable at December 31, 2021 Vested and exercisable at December 31, 2022 Number of Shares Weighted Average Exercise Price (in dollars) Stock Options 1,931,309 62,000 (107,405) (76,908) 1,808,996 - (1,321,639) (34,680) 452,677 1,295,532 432,673 19.35 22.18 19.99 28.77 19.01 - 18.21 24.90 20.88 17.73 21.03 Additional information regarding stock options outstanding as of December 31, 2022 is as follows: Outstanding Weighted Average remaining contractual life (years) 0.20 2.20 1.20 3.20 1.20 1.20 Number Outstanding 84,906 36,102 42,000 26,000 263,669 452,677 Exercise Price (in dollars) 16.70 17.53 19.97 22.18 22.70 Number Outstanding 84,906 16,098 42,000 26,000 263,669 432,673 Exercisable Weighted Average remaining contractual life (years) 0.20 2.20 1.20 3.20 1.20 1.20 Exercise Price (in dollars) 16.70 17.53 19.97 22.18 22.70 35 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, 2021 Granted Exercised and released for common shares Forfeited At December 31, 2021 Granted Exercised and released for common shares Forfeited At December 31, 2022 Vested and exercisable at December 31, 2021 Vested and exercisable at December 31, 2022 Restricted Share Units Number of Units Performance Share Units Deferred Share Units 830,440 399,785 (402,630) (71,859) 984,619 552,500 (526,812) (74,456) 755,736 935,851 357,254 (390,406) (91,452) 490,430 (502,560) (83,848) 631,132 839,873 583,937 165,790 (18,778) - 730,949 149,133 (108,092) - 771,990 730,949 771,990 Share-based compensation expense was $18.2 million and $20.9 million for the years ended December 31, 2022, and 2021, respectively, and is included in general and administrative expenses. During the year ended December 31, 2022, the Company did not award any options. For options granted in the comparative period, the fair value of the options granted was estimated at $4.07 per option, based on an expected dividend rate of 6.1%, an expected volatility of 41.1%, a risk free interest rate of 0.5% and an expected life of the option of three years, calculated by using the Black- Scholes model. 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 triennially, with the most recent actuarial valuation completed as at December 31, 2021. The OPRB plan continues to expose the Company to actuarial risks such as longevity risk, interest rate risk, and market (investment) risk. During the year, the Company settled the benefit obligations and plan assets as part of a partial wind-up of the defined benefit pension plan. The settlement was completed by entering into an agreement with a third-party insurance company to purchase an annuity for the plan participants in receipt of pension funds. The cost of the annuity purchase was funded with the existing plan assets. As a result of the settlement, the defined benefit plan assets and obligations reduced by $12.2 million and $11.4 million, respectively, which also resulted in recognizing a non-cash expense on settlement of $0.8 million in the consolidated statements of operations during the year. 36 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) Based on valuations by the Company’s actuaries as at December 31, 2022, and 2021, the status of the defined benefit plans is as follows: Accrued benefit obligation, January 1 Current service cost Past service cost Interest cost Benefits paid Actuarial gain 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) loss 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, 2022 2021 Pension 15,972 63 742 455 (12,784) (3,062) 4 1,390 16,525 473 144 (12,784) (2,224) (42) 2,092 (1,390) 2,092 702 OPRB Pension OPRB 4,094 276 - 131 (33) (2,198) - 2,270 - - 33 (33) - - - (2,270) - (2,270) 17,255 76 - 416 (707) (1,072) 4 15,972 14,869 356 626 (707) 1,414 (33) 16,525 4,398 310 - 122 (65) (671) - 4,094 - - 65 (65) - - - (15,972) 16,525 553 (4,095) - (4,094) (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 2022 5.1% 3.0% 2.9% 3.0% The assumed discount rate has an effect on the amounts reported for all post-retirement benefit obligations. A one-percentage point change in the discount rate would have the following impact: (Decrease) / increase in defined benefit plans obligations b) Defined contribution pension plans One % point increase One % point decrease (477) 590 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 for both the year ended December 31, 2022, and 2021, respectively. 37 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 are comprised of 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, 2022, the carrying amount of long-term debt was $1,655.0 million less debt discount and issue costs of $8.2 million and the fair value of long-term debt based on period end trading prices on the secondary market (Level 2) was $1,513.2 million. 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. 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, 2022 2021 Trade and Other Receivables Trade Payable and Accrued Charges Trade and Other Receivables Trade Payable and Accrued Charges 932,688 (810,032) 1,093,643 (810,032) 980,772 (827,370) 1,004,066 (827,370) 122,656 283,611 153,402 176,696 b) Derivative financial instruments (recurring fair value measurements) The following is a summary of the Company’s risk management contracts outstanding: Carrying Amount Fair Value Level 1 Level 2 Level 3 As at December 31, 2022 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) 414 45 2,236 1,475 4,170 4,558 1,758 976 935 8,227 414 45 2,236 - 2,695 4,558 1,758 976 - 7,292 - - - 1,475 1,475 - - - 935 935 Long-term debt (carried at amortized cost) 1,646,772 - 1,513,243 - - - - - - - - - - - 38 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) 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 - 1,971 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 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 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 forwards 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 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. 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 39 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) 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 2022 December 31, 2021 10,206 (10,206) 11,402 (11,402) 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 $2.6 million (as at December 31, 2021 – $2.7 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 2022 December 31, 2021 34,249 (34,249) 21,155 (21,155) 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. 40 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 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 2022 461,609 875 1,821 464,305 December 31, 2021 662,302 1,437 3,849 667,588 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, 2022, the Company had a revolving credit facility of $750.0 million and two credit facilities totaling $150.0 million. As at December 31, 2022, $255.0 million (December 31, 2021 – $270.0 million) was drawn against the revolving credit facility and the Company had outstanding issued letters of credit of $37.5 million (December 31, 2021 – $35.0 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, 2022, the Company was in compliance with these covenants. 41 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) Set out below is a maturity analyses of certain of the Company’s financial contractual obligations as at December 31, 2022. The maturity dates are the contractual maturities of the obligations, and the amounts are the contractual undiscounted cash flows. Trade payables and accrued charges (1) Dividend payable Long-term debt Interest on long-term debt Financial instruments liabilities Lease liabilities On demand or within one year 552,372 52,896 - 48,350 8,227 30,142 Between one and three years - - 325,000 93,382 - 33,208 691,987 451,590 Between three and five years After five years - - 580,000 76,916 - 11,299 668,215 - - 750,000 727,125 - 861 1,477,986 Total 552,372 52,896 1,655,000 945,773 8,227 75,510 3,289,778 (1) Excludes accrued interest and financial instruments liabilities. 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 2022 1,718,472 (83,596) 1,634,876 1,964,515 3,599,391 December 31, 2021 1,742,388 (62,688) 1,679,700 1,997,255 3,676,955 (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. 42 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 Minimum payments required under commitments, net of sub-lease income, are as follows: Long-term debt Interest payments on long-term debt Lease and other commitments (1) Total contractual obligations Payments due by period Total Less than 1 year Between 1 and 3 years Between 3 and 5 years More than 5 years 1,655,000 945,773 82,925 2,683,698 - 48,350 36,801 85,151 325,000 93,382 33,964 452,346 580,000 76,916 11,299 750,000 727,125 861 668,215 1,477,986 (1) Lease and other commitments relate to office leases, rail cars, vehicles, field buildings, various equipment leases and terminal services arrangements. b) Commitments to Equity Accounted Investees The Company does not have a commitment for additional funding for its equity investments as at December 31, 2022. 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 10, 2023, the Company amended its $750 million sustainability-linked revolving credit facility and extended its maturity date from April 2027 to February 2028, amongst other amendments. On February 21, 2023, the Board declared a quarterly dividend of $0.39 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 17, 2023, to shareholders of record at the close of business on March 31, 2023. Subsequent to year end, the Company purchased for cancellation an additional 0.7 million common shares for total consideration of $17.4 million. 43 Gibson Energy Inc. Notes to Consolidated Financial Statements (Amounts in thousands of Canadian dollars, except per share amounts) Note 27 Supplemental Cash Flow Information Note Year ended December 31, 2021 2022 Cash flows from operating activities Net income Adjustments: Finance costs, net Income tax expense Depreciation and impairment of property, plant and equipment Depreciation and impairment 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 (gain) / 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 15 223,245 145,053 64,939 66,890 107,353 29,184 7,942 20,543 (20,926) 32,324 (5,285) (934) (4,027) (4,512) 293,491 234,918 (174) 6,142 (109,931) (11,758) 119,197 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) (37,621) (29,722) 598,312 216,806 44 45 

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