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