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spk00: Good morning. My name is Sylvie and I will be your conference operator today. At this time, I would like to welcome everyone to the Gibson Energy Q3 2022 conference call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star 1 on your telephone keypad. And if you would like to withdraw your question, please press star then number 2. Thank you. Mr. Hitzchess. You may now begin the conference.
spk08: Thank you, operator. Good morning, and thank you for joining us on this conference call discussing our third quarter 2022 operational and financial results. On the call this morning from Gibson Energy are Steve Spaulding, President and Chief Executive Officer, and Sean Brown, Chief Financial Officer. Also in the room from the senior management team are Sean Wilson, Senior Vice President and Chief Administrative and Sustainability Officer, as well as Kyle DeGrucci, Senior Vice President and Chief Commercial Officer. Listeners are reminded that today's call refers to non-GAAP measures and forward-looking information. Descriptions and qualifications of such measures and information are set out in our continuous disclosure documents available on CDAR. Now, I'd like to turn the call over to Steve. Steve? Steve?
spk07: Thanks, Mark. Good morning, everyone, and thank you for joining us today. I'm very pleased with the performance of the business during the third quarter. Our infrastructure segment continues to provide consistent, stable cash flow and was very much in line with our expectations. On the marketing side, on our last call, we provided our outlet for a much stronger quarter, which we outperformed. As the business environment improved over the quarter, we ended up well above our expectations for both our refined products business and our crude oil marketing. Our distributable cash flow of $115 million represents the strongest quarter ever for Gibson. An adjusted EBITDA of $149 million would also be one of the strongest for the company. Perhaps more important is our infrastructure reaching a new high-water mark when excluding one-time items. While we certainly had a strong quarter from marketing, it's this rateable infrastructure performance that supports our dividend and capital structure. These strong results further improve an already strong financial position, our leverage ratio has decreased to 2.7 times, which is below the bottom end of our target range. And our payout ratio decreased to 64%, which is also the lower end of our target range of 70 to 80%. Given this strong financial position and consistent Consistent with our plan, in the event we realized improved business performance, we have continued to be very active with share repurchases to increase the capital we return to our shareholders. Since the start of the third quarter, we bought back $41 million, or about 1.2% of our outstanding shares. With this buyback activity in the quarter, We have now reached the full-year target of $100 million, with buybacks to date representing just under 3% of our outstanding shares. And we will continue these repurchases through the balance of the year, targeting up to $150 million for the year, which would represent the repurchase of nearly 4.5% of our outstanding shares. which we see as meaningful and reflective of a robust third quarter financial performance, as well as our current view of another strong financial performance in the fourth quarter. We also see it as acting as our commitment to return capital to shareholders when appropriate and within our capital allocation framework. We consider our share repurchase as complementary to our dividend, which we increased by 6% earlier this year and will review again in February. I would remind everyone that both management and the board sees value in providing a steady growing dividend, especially in the current inflationary macro environment. Fortunately, If we buy back 4.5% of our shares, it also reduces our dividend costs by that same percentage. In terms of running the business, our major focus right now is on securing additional growth projects. Our goal remains to deploy $150 to $200 million each year. And we are increasing our commercial focus by developing a new ventures team to review and develop opportunities outside our existing footprint and in an energy transition. In terms of sanctioning the next round of capital, at Edmonton, we continue to hold discussions for additional tankage. We believe Gibson is well positioned to support shippers on TMX, optimize crude oil netbacks, and meet stream requirements. We remain optimistic that we can sanction an additional two tanks. In terms of timing, clear visibility to TMX in-service date remains important to our potential customers, meaning sanctioning decision has gotten pushed into 2023. We also believe we continue to develop out additional infrastructure to Edmonton under the Suncor MSA. As we saw with the biofuels blending project, which had a capital cost equivalent to roughly one and a half tanks, opportunities under the MSA can be sizable. And we are in the early stages of a potential project under that MSA in 2023. On the DRU, we continue to advance discussions for an additional phase and continue to believe that economics for the full value chain will remain strong relative to pipelines over the long term. We'll provide a more fulsome capital outlook for our 2023 capital in early December. Like this year, capital for 2023 will be contingent on sanctioned additional projects. Given we expect it to be below our internal funding capacity, we expect buybacks will continue through 2023. We continue to advance our ESG journey at Gibson. And we released our second sustainability report. We believe the report showcases the progress we've made embedding sustainability in our business and culture, as well as working towards our 2025 and 2030 targets and our roadmap to net zero. On the safety side, we are achieving the best health and safety performance in our company's history. We view both our lost time injury frequency and our recordable vehicle incident frequency rates of zero for employees and contractors for the second year in a row as an outstanding result. Also, our improvement in our total recordable injury frequency, or TRIF, is a rate at around .4 for employees and contractors. This is top quartile safety performance among our peers in Canada and North America. We remain vigilant and will continue to develop and mature our safety culture with a focus on zero incidents. It's also worth noting that we have already achieved both our board diversity targets and one of our senior leadership targets. having at least one racial and ethnic minority or an indigenous person on the board, of having 40% women on the board, both ahead of our 2025 target, and having at least one racial or ethnic minority person or indigenous person hold an SVP title or above. Of important note, 50% of our leadership team, vice president and above, identify as female or underrepresented. We are proud of our commitment to our communities. We operate in and around, having made $1.5 million in contributions to nonprofit organizations this year, and the average employee having volunteered at least 12 hours across the year. As we continue our ESG journey, we recently released our indigenous engagement principles. This will help us continue to advance our indigenous relations effort and further our relationships with indigenous communities in and around our areas of operation. To close, the business certainly delivered a strong quarter. Infrastructure reached a new high. strong performance across the asset base. The marketing segment was well above our expectations. And as a result of our strong business performance, we stayed true to our commitment to return capital to shareholders through the buyback of just under $100 million to date and an expectation to buy back up to an additional $50 million through the remainder of the year. I'll now pass the call over to Shawn who will walk us through our financial results in more detail. Sean. Thanks, Steve.
spk08: As Steve mentioned, another strong quarter. Infrastructure adjusted EBITDA of $111 million this quarter was in line with the second quarter of this year. Recall that last quarter, we had the Moose Shot turnaround, but that was offset by a one-time item. As always, a little movement within each part of the business, but... Overall, a very steady result, which is what we like to see from an infrastructure business. And, as Steve mentioned, a high watermark for the infrastructure business, with infrastructure driving our highest distributable cash flow result ever. Comparing this quarter to the third quarter of 2021, adjusted EBITDA increased by about $7 million. As revenues at Edmonton benefited from additional infrastructure and service, as well as entering into the Suncor MSA, the DRU being fully operational, and a higher contribution from Canadian pipelines. In the marketing segment, adjusted EBITDA of $48 million was above our outlook. When we provided that outlook, we were seeing that the corridor was shaping up nicely on the refined product side, driven by drilling fluids and road asphalt, But what was somewhat unexpected was a strong contribution from crude marketing in the last month of the quarter. The results this quarter were a $35 million increase from the second quarter of this year and a $32 million increase from the comparable quarter last year. In both instances, contribution from each of crude marketing and refined products was higher this quarter. In terms of our outlook for marketing, the environment for refined products remains positive, while the crude marketing side is still operating within a below average environment, given that the wide WCS WTI differential is reflecting more quality differential than any sort of locational opportunity, and the forward curve remains in backwardation, limiting tank roll opportunities. As such, we would expect adjusted EBITDA of $30 million or higher in the fourth quarter. Putting that into a bit of context, the marketing segment has now recorded adjusted EBITDA through nine months of $81 million, with our outlook implying $110 million or more for the year. Finishing up the discussion of the results, let me quickly work down the distributable cash flow. For the third quarter, we reported distributable cash flow of $115 million, which was a $40 million increase from the second quarter of this year and a $44 million increase from the comparable quarter last year. The majority of the differences would be the factors I already spoke to when discussing the segment results. Smaller drivers would include the benefit of foreign exchange gains, partly offset by higher current income tax, which is largely due to higher taxable income. If comparing to the third quarter of last year, G&A was also slightly higher. Now, although we spoke to it last quarter, we remain cognizant that inflation is a focus for many right now. So please let me reiterate that we have seen some impact, though mostly on our operating side in terms of items such as power and utilities, as well as repairs and maintenance. As we have advanced our 2023 budget process, one area that we have seen some cost pressures is on the G&A side from both employee costs increasing, plus ensuring that we maintain the capabilities we need to advance our business, such as on the commercial as well as technology sides. In that context, we'd expect that our G&A run rate has increased slightly, probably to that $10 to $11 million per quarter range. In terms of the infrastructure business, we see a low risk relative to other business models in the midstream space. We have escalators on the majority of our tank contracts and our operating costs as a percentage of revenue are low. On the capital side, we have also seen cost escalations, but these so far have been contained within contingency amounts. That being said, Inflation is certainly a consideration as we review our 2023 budget or any other new capital sanctions. Lastly, on the capital structure side, only about 10% of our total borrowings are in our credit facility, with the remaining 90% in the form of fixed rate notes. The first maturity on those notes is in mid 2025, so we also don't see any cost inflation from refinancings for nearly three years. though we remain cognizant of the increase in funding costs for new capital, which is being reflected in our required returns as we evaluate new opportunities. In terms of our financial position, our payout ratio now sits at 64%, which is below the bottom end of our 70% to 80% target range, and our debt to adjusted EBITDA decreased to 2.7 times, which is below the bottom end of our 3% to 3.5 times target. Given that a majority of the decreases in these two metrics were driven by an improvement in marketing, we would also look at it on an infrastructure-only basis as well. Using this lens, our leverage would be 3.2 times, and our payout ratio would be approximately 68%, where we seek to be below 4 times and 100%, respectively, under our financial governing principles. So certainly a very strong financial position. And taking into account our financial position, the consistent performance of our infrastructure business, and the uplift in marketing results, we have continued to adhere to our capital allocation philosophy, having bought back $97 million in shares so far this year, including approximately $41 million since the start of the third quarter. This repurchase of 3.9 million shares thus far this year represents approximately 2.7% of shares outstanding, an amount we view as particularly notable relative to peers. And, as Steve mentioned, having effectively already reached our prior target of $100 million provided on the last earnings call, we are now targeting buying back up to $150 million this year. To the extent our share price remains around current levels, this would imply that we would repurchase nearly 4.5% of our outstanding shares this year. In summary, the results in the third quarter were solid. The infrastructure segment had its strongest quarter, while marketing results were above both our expectations and levels we had been seeing in the past few quarters. From a financial perspective, we remain in a very strong position being below the lower end of both our leverage and payout target ranges. And we continue to be of the view that our business offers a strong total return proposition to investors, which we believe we have bolstered with our use of the buyback, both in terms of what we've executed on today and our intention through the balance of the year. At this point, I will turn the call over to the operator to open up for questions.
spk00: Thank you, sir. Ladies and gentlemen, if you would like to ask a question at this time, please press star followed by one on your touchtone phone. You will then hear a three-tone prompt acknowledging your request. And if you would like to withdraw from the question queue, please press star followed by two. And if using a speakerphone, we do ask that you please lift the handset before pressing any keys. Please go ahead and press star one now if you have any questions. And your first question will be from Jeremy Tennant at JP Morgan. Please go ahead.
spk03: Hi, good morning. Good morning, Jeremy. Just want to touch on the marketing segment, if I could, a little bit here. And thanks for the color on the fourth quarter and the outlook for above 30 there. But just was wondering if we might be able to look a little bit past that into 23 and how you see the year shaping up as a whole year Do you see a bias towards kind of the high end or low end of your normalized range there? And, you know, what are the key variables that you think could change around that?
spk07: Let me start, Jeremy. This is Steve. You know, we've kind of went through the budgeting process and taken a pretty good look at our marketing organization. You know, obviously there's a lot of variables that change and can change over the year. You know, we have the 80 to 120 out there, and I would say right now we're kind of looking mid-range around that just because, you know, we don't know all the variables that are out there. But I'll hand it over to Kyle to give you a little bit more color.
spk09: Hey, Jeremy. Kyle here. Yeah, I mean, Steve covered that pretty nicely over 23. There's clearly obviously a few variables there. You know, right now what we know is kind of what was said in the prior remarks that, you know, our refined products business looks to – looks to be healthy at the moment. Q3 was really around asphalt and drilling fluids. We expect some of that to slow on the asphalt side, which is normal for this time of year. On the other side, our crude marketing business is really going to be dependent on how that heavy market in general is looking through 23. We talked a little bit last call to those variables. We've got Gulf Coast and the Midwest really driving the bus in terms of pricing up here. You know, we've got some near-term issues that I would expect to clean up in the way of Midwest refiners having some outages. We'll see how SBR cleans up, but we still need to see that export market really open and clear barrel. So those are some of the variables that will impact 23 and some of the things that we're looking at right now.
spk03: Got it. That's very helpful. Thank you. And just wanted to pivot towards capital allocations here in clearly a standout on share repurchases relative to all North American peers here, and was just wondering if any of these upside, you know, variables pan out next year. How would you think about, I guess, deploying that? It seems like it would be more leaning towards share buybacks, or just wondering if you could kind of update us on capital allocation thoughts within the context of upside possibilities there.
spk08: Yeah, thanks, Jeremy. I mean, really not a lot of change from a capital allocation philosophy from last year. I mean, we're going to stay fully funded. Priority will be on allocating capital to growth capital to the extent that it is the nature that we typically invest. You know, think five to seven, build multiple long-term contracts, invest in great counterparties. To the extent that there's excess cash flow beyond that, you know, philosophy will remain very much the same as this year. If that's from infrastructure principally, then as we talked about in our prepared remarks, we'll continue to buy dividend increase. We do see value in modest annual dividend increases. To the extent that it's primarily for marketing, then we'll continue to buy share buybacks. So you saw this year a capital number that's lighter than our fully funded number. We had a $100 million target in buybacks. earlier in the year. We've seen our performance from the marketing business more in the tail end of the year here, and you will have seen us flex up the buybacks. I'd expect to have somewhat of a similar dynamic next year.
spk03: Got it. That's very helpful. I'll leave it there. Thanks. Thank you.
spk00: Next question will be from Rob Hope at Scotiabank. Please go ahead.
spk06: Morning, everyone. Another question on capital allocation with a strong balance sheet, strong cash flow. How are you thinking about M&A to potentially give yourself another platform as another lever for growth?
spk07: Thank you, Rob. I would say we're Over the last two year and a half to two years, we've been out there looking for M&A opportunities that fit us and fit our strategy and fit our risk portfolio. And I think we're going to continue to do that. We may broaden the net some just because, you know, opportunity set is pretty small. But it's definitely an active piece of our commercial and corporate development. Sean?
spk08: Yeah, absolutely. I think tying that to cap allocation is good as well, Rob, because I think what you've seen here, and as Steve said, it's not like we have not been actively looking for M&A. It's just we've been very disciplined as we think about it. And what we've seen thus far, you're right, we've got a fantastic balance sheet. We did have excess cash flow this year, but we're very happy to allocate that to share buybacks as we wait for opportunities to present themselves and to the extent that they do. You know, that's something that we would be willing to action. But, I mean, again, to the extent, you know, our view is we can continue to remain disciplined and allocate excess cash flow to share buybacks and wait for that opportunity to present itself.
spk06: Thank you for that. And then maybe just a follow-up question on the broaden the net analogy. You know, historically, we've seen you very focused on on liquids, renewable diesel, the DRU. Could we see you broaden that further out more into the NGL sphere, maybe into the gas sphere as well?
spk07: You know, we'll certainly look at everything. That's probably not our core, right, where liquids is our core. But if an opportunity comes that we feel is a good set and the board feels is a good set for us, then we might action something like that. But I would think our main focus really is terminals. How do we build terminals? Maybe how do we expand that terminal business outside of just crude oil? How do we use our terminal and expertise in the renewable side of the business as that expands?
spk06: All right, that's great. Appreciate the color. Thank you.
spk00: Next question will be from Robert Kwan at RBC Capital Markets. Please go ahead.
spk06: Great, good morning. Whether it's M&A or just around the new ventures and new platforms, you know, as you think about your core growth, Sean, you mentioned, you know, five to seven build multiples, long-term contracts, investment-grade counterparties, take or pay, that type of thing. How much are you willing to sacrifice some of that, whether that's the going-in returns or the risk profile, just to establish, you know, a new base or new platform?
spk10: to get something going.
spk07: So that's a debate that we've definitely had amongst our management team and the board. And we may need to take on a little bit more risk than we have in the past to establish a new platform. And so that's something that we'll be very careful in doing. But, you know, I do think that at the end of the day, you know, we're not looking for overall commodity exposure, right? So, Sean, I'll turn it over to you.
spk08: Yeah, no, I think a great question. You know, as you look to establish new platforms, you don't have the incumbent advantage you otherwise might have. The initial investment certainly may look a bit different. And as Steve said, that's something that we constantly think about. And as you look at any investment opportunity, that's going to be the debate. I mean, I think the one thing is it's not something we need to do. As you've seen this year, we're happy to allocate shares to buybacks. We're happy to sit here with a fantastic balance sheet and look for the right opportunity to present itself. So as we sit around the table, it's not like we think that we have to go and go risk on or make an investment outside of a return just to do something. We think, and I talked about it in our prepared remarks, the total return that we provide to investors through a steady growing dividend, stable cash flow supplemented by share buybacks is actually quite attractive as we look for those opportunities.
spk06: Got it. And just as if you were to get involved in something like that, and take on either more risk or a lower return kind of as a cost of entry, is that something where that investment or whether it's a new kind of project or M&A, would that be incremental in your view or would it possibly be transformational size-wise?
spk07: I would say more incremental than transformational. Maybe transformational on a long-term basis as we continue to deploy that type of strategy, but not on a one-deal transaction. We're probably looking for much smaller transactions to do that. You've got to think, when we always say the five to seven, when we're building out infrastructure such as the top of the hill where we built out over three million barrels of tankage, those first tanks the rate of return on those first tanks wasn't high. So we're used to actually deploying smaller rate of returns at the beginning to reap the larger rate of returns in the end.
spk06: Got it. And maybe just to finish in terms of a specific project along this line of questioning, You know, renewable diesel, can you just give an update there? You made some comments just around being cautious in the inflationary environment. So, just where are you at with that project?
spk07: I would say, you know, we're still advancing engineering on that project. We still see long-term opportunity there. I would say we are – we're probably bringing ourselves back to where we began, which is we're looking for a fee for service on that. And that opportunity is definitely, you know, with the U.S. Inflation Reduction Act kind of boxed out really Canadian opportunity to participate in renewable diesel in the States. And so we still believe it's a great project, but I think it's going to need to be a Canadian-led project. And so we're going to need some additional support from the government.
spk06: That's great. You said looking back for fee-for-service, obviously I don't want to pin you to an exact number, but what percentage of the output would you want to be long-term contracted on a fixed fee basis? What percent would I want? What percent do you think is reasonably achievable if you went forward with the project?
spk07: I think we're still targeting that 100%, right? I mean, that's our goal. But obviously, you know, negotiations can shift you around some. How low would you go about that? I don't. I can't answer that at the current time. But, you know, we're not going to go to 100% right now. There's just too much risk out there in the market, too much unknown.
spk10: Okay. Thank you.
spk00: Next question will be from Bansam at BMO. Please go ahead.
spk05: Hi, thanks. I had a couple questions on the infrastructure segment. I'm wondering if you could decompose it a bit more between percent tanks, percent U.S., maybe Moose Jaw in there, and then also add in the associated contract lengths of each of those pieces.
spk07: Are you talking about going forward? Ben?
spk05: I think it may be the current percentages or more general ranges.
spk08: We don't really provide that level of granularity, Ben. Out there, as you know, the vast majority is our tankage business. We do have the ITP at Bouchon. I'd call the U.S. business being relatively modest right now and our Canadian pipelines business being relatively modest right now as well. You know, so we don't typically provide that, but again, vast, vast majority would be on the tankage side, but again, hard to see really being the biggest driver amongst that. You know, from an average contract life, I think if you read our rating agency reports, you can get that from there. Again, this is on the tankage business, which is, you know, what should matter, and, you know, think of that being sort of circa eight-ish years.
spk07: Well, and you look at what we announced and what we've been executing this year. We built a tank at Edmonton. We did the biodiesel project at Edmonton.
spk08: On a 25-year basis?
spk07: Yes. And a 10-year contract on the tank at Edmonton. And then you've got to look. We did spend some money at Moose Jaw, right? It wasn't a ton of money that we spent at Moose Jaw, but it's a two or three times multiple. And it reduces our environmental footprint by 20%. So as far as total hydrocarbons, our total carbon emissions. And it also expanded the facility 1,000 barrels a day currently, and we hope to get it all the way up to 24,000 barrels a day. So if you look at Moose Jaw, we've really been able to expand it from 17,000 barrels a day all the way up to eventually 24,000 barrels a day. We have some small D bottlenecks that we've got to do. And without adding any fuels, and reducing our environmental footprint. So really, that's one of the things when you look at Moose Jaw, I would say this is a record year for Moose Jaw facility, both in because we were able to reduce our cost per barrel on the offside, increase overall production or overall capacity, and lower our fuel costs along with some really good tailwinds on in the second half with reduced supply costs.
spk08: Yeah, and Ben, for some of that granularity, it's also in our investor deck, you know, from an infrastructure split. So I guess maybe follow up with Mark afterwards if you're looking for more than that, but we do give it, you know, a split on a segment profit basis amongst those different constituents in the deck as well.
spk05: Okay, that's great color, guys. And then maybe the volume sensitive side of infrastructure, are you, is there some room left for
spk07: upside there especially from COVID-19 are you you still maybe getting to or are you getting to levels where more it's uh getting closer to your initial expectations we'll talk about hardesty at the beginning right so hardesty just about quarter on quarter when you look back every quarter goes up now certainly you know we have the the we're going to see higher throughputs in the uh in the fourth and first quarter, as diluent ramps up across it. But actually in September, we moved our highest volume ever prior to diluent actually even being injected into the stream, or being beat up. So we're moving almost 1.3 million barrels a day through harvesting now. And I assume that we'll surpass that during the winter season. And then at Moose Jaw, You know, we have record throughputs through Mooshaw. We have record throughputs through our U.S. assets, record throughputs through our, not record throughputs through our Canadian assets, but record throughputs over the last six or seven years through our Canadian gathering system. And then at Edmonton, I would think we've almost, I would say we're close to 50% higher than we were before we, over last year, right? We have a significant increase across our throughput at Edmonton. So really we're seeing a ramp up of throughput across all systems. And that's one of the reasons you're seeing this, you know, a record, you know, although we don't have a big, although we don't have a big driver when it comes to throughput, it is one of the reasons you're seeing, you know, this quarter as one of our record quarters on the infrastructure side. And we don't see that changing, Dan.
spk05: Okay, that's great. Maybe one last one from me on your comments on renewable diesel. Would you characterize that more as it's the file still sitting on your desk there? Is it in a file encablement? It doesn't look like you've shredded the documents or shredded the B opportunity yet.
spk07: No, I think, you know, long term, I think opportunities, you know, great opportunities sometimes take time to actually develop. And we think this is a great opportunity for us but we're going to take the right time to develop it. Okay, great. Thank you.
spk00: Next question will be from Robert Cotelier at CIBC Capital Markets. Please go ahead.
spk01: Hey, good morning. I think I'll start by congratulating you on these strong results here. But my question was on the new ventures. I wonder if you could – detail the mandate you've given them in terms of, sorry, the geography and the asset class, classes you might want them to consider.
spk07: All right. Actually, I'll give that over to Kyle. Kyle runs our, that organization reports into Kyle. Hey, Robert.
spk09: Yeah, I mean, I think that We would love to be within our existing geography if we could, but certainly within our existing skill set, whether that's tanks or processing. We are looking, I'd say, not outside of North America, but again, all these opportunities, no matter where they are in North America or what they are, they certainly have to fit within our risk return parameters. It's being brought in. The team is currently being built up in order to Look at some of these opportunities, whether that's in our existing energy transition space, maybe more in the refined products world. But I wouldn't say it would be anywhere outside of North America at the moment, but that's kind of the scope right now. Again, we want it to be within our existing skill set. Like Steve said, that kind of currently exists around our tankage side of the business, processing and some of our marketing capabilities.
spk01: Okay, that's helpful. And then when you say you're broadening the team, you're actually adding outside talent. So it's not just a reallocation from somewhere else. It's new people.
spk07: Kind of both, right? I mean, we have some really creative people in the organization that we're moving into that group. We're looking to add someone in the U.S. And on that side, it'd probably be predominantly focused on energy transition, tourmaline, how do we get a footprint into that? How do we build that out? And then in Canada, I think we're probably going to add two more senior people. One focused on kind of broadening that net and new ventures, and then the other is just a real focus on expanding our footprint in our traditional business.
spk01: Okay. And then last question for me is I'm just curious as to what you see the impact from Suncor consolidating tech's interest in Fort Hills. Do you think that has any impact on volumes for you, either in the infrastructure side or marketing?
spk07: I mean, Suncor is one of our largest customers. We have a great relationship with Suncor. I would see it as just an opportunity for us to continue to strengthen that relationship going forward, Robert.
spk10: Okay. Thank you.
spk00: Next question will be from Andrew Kosky at CreditSys. Please go ahead.
spk02: Thanks. Good morning. Steve, you mentioned earlier just the Inflation Reduction Act in the U.S. and some of the challenges as a Canadian company around the IRA. What do you see coming down the pipeline maybe with the Canadian economic update later this week to try to level the playing field on certain capital being allocated into certain pockets of industry between Canada and the U.S. to try to make things more fair from an IRA standpoint? And how would that actually affect Gibson?
spk08: Thanks for that question there, Andrew. I mean, one of the things to think about there is that the U.S. is setting up you know, a system where you have visible per gallon incentives. Whereas in Canada right now, the intention is to create a market, but the value of the credit is somewhat uncertain. So one of the many things that would help would be to see additional certainty on the value of that credit.
spk05: Also having some kind of visibility to capital, whether it's through tax incentives or support on capital would also be helpful.
spk02: Okay, that's, that's helpful. I guess we'll all be waiting for Thursday to see if anything happens on that front. And then maybe a bit more narrow question, and it's probably directed to Sean. And it's just on the inventory levels. You know, is it fair to say just with product prices where they are that, you know, your inventory levels are pretty lame from the product you're actually sitting on, on your books?
spk08: I mean, Kyle can speak to that. I would say if you look from a volume perspective, quarter over quarter, the vast majority of the inventory reduction was actually from pricing, wasn't from volume. So you can see that. But I mean, maybe you can speak to sort of inventory expectations, Kyle.
spk09: Yeah, sure. Yeah, I mean, Sean covered that pretty well. I mean, we did have a pretty significant decrease in commodity prices. So that's going to be the main driver. Heading through Q4, I mean, we will probably, you would historically see a little more inventory, primarily around our asphalt business. But, you know, there are also more opportunities generally in Q4 and Q1 in the crude marketing space. I mean, those, if you do see additional inventory, that's really opportunity-based. So we'd be doing it for a reason. But, I mean, that's loose, saying historically, but, you know, we would hope to see those opportunities. So if we are building inventory, then... That's based on us seeing value in doing so.
spk07: Yeah, so time spreads, right? So if time spreads open up for us, we'll add inventory. But we'll definitely keep our cost of capital in mind when we're doing that. But we have ramped up. When the market goes into contango, there's opportunity for us to take storage time spread, locked-in margins, But with rising interest rates, we'll definitely keep an eye on what those inventory costs are versus what we're capturing.
spk02: Okay, that's perfect. Thank you very much.
spk00: Next question will be from Patrick Kinney at National Bank Financial. Please go ahead.
spk04: Yeah, good morning, guys. Just as it relates to energy transition, it sounds like the renewable diesel is a bit more longer term at this point. Just wondering what other... more near-term opportunities you might be able to look at across the portfolio just to use energy transition as a growth vehicle. And then also, now that energy security has moved into the spotlight, if you see this as opening the door for bolting on some other hydrocarbon opportunities such as gathering pipelines or perhaps down the DRU value chain.
spk07: There was a lot of questions in there, Pat. Start with where we are now. I mean, we actually executed the biodiesel blending facility for Suncor and put it in service this year. That is a renewable opportunity. We believe we'll do a similar sized project, about a tank and a half of capital. We think we'll execute that probably in the second half of next year. And then part of the new ventures team is to look for those opportunities. How do we get a footprint and how do we grow as renewable diesel grows as a commodity or as SAF grows as a commodity, both north and south of the border? And then I did talk about the new ventures team. One of the roles of that kind of a high level that we're bringing on board is to really focus on conventional production in Canada and how do we continue to develop and expand our gathering presence for conventional production in Canada.
spk09: I think you have one more, but... I think that it was just on energy security. I mean, we'll see how that plays out. I think that we would be of a similar view that all that really points to being kind of bullish Canada from a regulatory regime, reliability of supply. How that plays out exactly, we'll see. I mean, but I think that over the long term, I mean, that certainly should add opportunities and value to our existing assets and then potentially things like DRU as well. I would say it's probably early innings on seeing how that plays out. But, you know, we think that's probably a tailwind for Canada in general.
spk04: That's great. And I guess, you know, as you look to, compete for more of these opportunities. I guess for Sean here on the credit rating front, I know there's not much in the way of debt maturities over the near term, but just curious how you're thinking about perhaps achieving at least a one notch upgrade on the rating at some point and how you might see the quickest path towards getting there.
spk08: I mean, Pat, if you look at it, we're just over two and a half times levered. We're 90% infrastructure. And that infrastructure, which we've seen to the rateability, is true infrastructure. So we think some of the most stable cash flows out there. So if you ask me, I think we already have a credit profile that's deserving of that. If you look at all the various components, including quality of counterparties, if you think about it, really what's holding us back right now is being bigger. And I think getting bigger just for the sake of getting a one-nosh upgrade would be foolish. So, I mean, how are we going to get there? We're going to continue doing what we're doing. We're going to continue to focus on the high-quality cash flows, and we're going to have a conservative capital structure. And, you know, just like achieving the investment grade rating, it will happen over time. But, you know, I don't see us doing anything material just to get that rating because, to be clear, I think we already have a credit profile that's reflective of it. And if you actually look at where our bonds trade, it would be reflective of a mid-triple B credit more than it would a triple B minus. Got it.
spk04: Got it. That's great, Keller. Thanks, guys. I'll leave it there.
spk00: Thank you. And at this time, we have no further questions. Gentlemen, please proceed with closing remarks.
spk08: Well, thanks, Operator, and thank you, everyone, for joining us on our 2022 third quarter conference call. Again, I'd like to note that we have made certain supplementary information available on our website at gibsonenergy.com. As always, if you have any further questions, please reach out to us at investor.relations at gibsonenergy.com. Thank you. Have a great day, and thanks for your support of Gibson.
spk00: Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time, we do ask that you please disconnect your lines. Enjoy the rest of your day.
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