Gibson Energy Inc.

operator today. At this time, I would like to welcome everyone to the Gibson Energy Q4 2023 conference call. Our 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, then the number one on your telephone keypad. If you would like to read your question, please press star followed by the number two. Thank you. I would now like to turn the meeting over to Ms. Beth Pollock, Vice President, Capital Markets and Risk. Ms. Pollock, please go ahead.

Thank you, Laura. Good morning and thank you for joining us on this conference call discussing our fourth quarter and full year 2023 operational and financial results. Joining me on the call today from Gibson Energy are Steve Spaulding, President and Chief Executive Officer, and Sean Brown, Senior Vice President and Chief Financial Officer. We also have the rest of the senior management team in the room to help with questions and answers as required. Listeners are reminded that today's call refers to non-GAP measures, forward-looking information, and pro forma financial information. Pro forma financial information is derived in part from historical financial information of South Texas Gateway Terminal LLC and is subject to certain assumptions and adjustments and may not be indicative of actual results. Descriptions and qualifications of such measures and information are set out in our investor presentation available on our website and our continuous disclosure documents available on CDAR+. Now I would like to turn the call over to Steve.

Thanks, Beth. Good morning, everyone, and thank you for joining us today. First, I'd like to touch on highlights from our last year. As is customary, Sean will speak in more detail regarding our financial results and financial position. And before we conclude the call, I'll provide some brief remarks regarding the announcement of my retirement. In 2023, we advance our infrastructure growth strategy through the acquisition of the Gateway Terminal and continue to deliver strong and consistent financial results. In our infrastructure segment, with the benefit of a full quarter of contribution from the Gateway Terminal, which closed August 1st, we set a record for the company with segment EBITDA $494 million. This breaks the previous record of $442 million, which was set the previous year, and speaks to the growth and stability of our infrastructure business. We are proud of the rate at which our infrastructure segment continues to grow, which equates to a compounded annual growth rate of 16% since 2017, pro forma the Gateway acquisition. On a consolidated basis, adjusted EBITDA and distributed cash flow of $594 million and $386 million, respectively, are also high watermarks. Both were driven by the addition of Gateway in August. Insistent growth performance from our legacy infrastructure business and our marketing segment's ability to generate cash flow in an operating environment, in really any operating environment. For the year, our marketing segment achieved adjusted EBITDA of $145 million, well above our long-term run rate of 80 to 120. In terms of the balance sheet, Gibson remains a solid financial position. Pro forma the Gateway acquisition, we exit 2023 with a leverage ratio of 3.1 times at the low end of our 3 to 3.5 times our target range. We also had a sustainable payout ratio of 61% below the low end of our target range of 70 to 80%. Given our financial performance and increased contribution from our infrastructure segment, we increased our quarterly dividend by 2 cents or 5% or 41 cents per share, which equates to an annual amount of $1.64 per share. As always, we continue to see significant value in offering our shareholders consistent dividend growth and believe this increase reflects the continued growth of our long-term stable infrastructure business. Speaking to a few of our milestones, construction on the two new tanks at Edmonton Terminal are on schedule and they are expected to be placed in service in late 2024. These tanks, which are underpinned by a 15-year -or-pay agreement with Sonovus, represent 870,000 barrels of new tankage. And when combined with the previously announced tank, which was placed in service in the fourth quarter of last year, result in a total of 1.3 million barrels constructed to support TMX shippers. These tanks will further increase our high-quality, long-term infrastructure revenues and support our customer shipments on the TMX pipeline. With respect to Gateway, we are very pleased with our performance so far, which is ahead of our initial expectations and tracking well in line of that nine times forward-looking multiple we disclose at announcement. As we look forward, our focus is on optimizing the facility with a goal of increasing contracted loading windows, increasing the throughput and minimum volume commitments, and extending existing contracts. Discussions with customers are ongoing and we remain very constructive around our ability to enter into new contracts and extend existing contracts at or above current

rates by the end of the second quarter. Looking ahead, we announced our 2024

capital budget, which includes a target growth expenditure of $150 million. Of that amount, $125 million is focused primarily on Edmonton, Artisty, and Moose Jaw, with an incremental $25 million of capital expenditure to be deployed at Gateway. From an ESG perspective, last year we released our 2022 sustainability report, which outlines some notable milestones which take us a step closer to achieving our 2025 and 2030 targets. This included maintaining top quartile safety performance among our North American peers, announcing a 15-year renewable power purchase agreement with Capstone Infrastructure and Saw Ridge First Nation, and maintaining a -in-class position and employee participation in our community giving program with a rate of 95%. Gibson was also acknowledged by the key global recognized ESG rating agencies for its performance, transparency, and management of ESG issues, reaffirming its position as a global leader in sustainability. This included a fourth consecutive A- in a row from CDP, the Carbon Disclosure Project, and a AAA rating from MSCI. As a forward-thinking industrial leader, Gibson will remain resolute in sustainability journey and further leverage its world-class asset base and growth opportunities to contribute to a more secure and resilient energy future. In summary, the business delivered another solid quarter, which marked the end of another solid year. Infrastructure reached a new high, partially attributable to the benefit of the Gateway acquisition, but also driven by that continued strong and stable performance of our legacy infrastructure assets. The Gateway acquisition is ahead of initial expectations, and we are optimistic about our ability to optimize the facility by increasing contracted loading windows and extending existing contracts at similar or higher rates. The marketing segment outperformed our long-term run rate for the full year, and as a result of our consent, continued solid financial results, and the strength and stability of our business, we are pleased to announce the increase of our dividend by 5%. I will now pass the call over to Sean, who will walk us through our financial results in detail. Sean?

Thank you, as Steve mentioned, 2023 was truly a significant year for our company. Infrastructure adjusted even of $153 million in the fourth quarter, with $13 million higher than the third quarter, and also ahead of the first two quarters of the year. This was driven in part by a full quarter of contribution from Gateway, as well as continued strong financial performance from legacy infrastructure businesses, which reflected a full quarter with the new tank in Edmonton. These same factors ultra-contributed to a $42 million -over-quarter increase when comparing this quarter to the fourth quarter of 2022. Turning to the marketing segment, adjusted EBITDA of $28 million was $4 million higher than the third quarter, and ahead of the outlook we provided on our last quarterly call of approximately $25 million. This difference is attributable to incremental storage and location-based opportunities during the quarter, which allowed our crude marketing group to realize higher than expected earnings. Looking forward for marketing, the environment for crude marketing remains positive, and we expect to realize storage and location-based opportunities within the quarter. Additionally, refined products continues to see strength in our drilling fluids business. Based on market conditions at this time, we would expect adjusted EBITDA of over $30 million in the first quarter. To complete the discussion around our fourth quarter results, I would like to quickly work down to distributable cash flow. For the fourth quarter, we reported distributable cash flow of $103 million, which was a $10 million increase from the third quarter of this year, and a $14 million increase from the fourth quarter of 2022. Insistent with previous commentary, the majority of the increase is attributable to a full quarter of cash flow from the Gateway Terminal, but smaller drivers contributing to the increase include lower taxes in the fourth quarter, which was partially offset by the impact of marginally higher replacement capital and interest expense. As the fourth quarter concluded 2023, I would like to compare -over-year results. As previously mentioned, on an annual basis, the infrastructure segment set another record. Adjusted EBITDA was a $52 million increase from 2022 before adjusting for the impact of the one-time environmental provision in Q2 of this year. Excluding that provision, adjusted EBITDA increased by approximately $69 million. At the same time, marketing adjusted EBITDA increased from $118 million in 2022 to $145 million in 2023, a $27 million increase. The largest driver of this increase was an improvement in our crude marketing business, which was partially offset by a -over-year reduction from refined products. As such, on a consolidated basis, 2023 adjusted EBITDA increased by $69 million to $589 million, setting a new high watermark for the company this second consecutive year. These results contributed to a distributional cash flow of $386 million in 2023, an increase of $30 million relative to 2022, a new record for Gibson. Our strong financial performance allowed us to maintain our conservative financial position. Exiting the year, our payout ratio of 61% is well below the bottom end of our 70 to 80% target range. Our -to-adjusted EBITDA pro forma the gateway acquisition is 3.1 times. At the low end of our 3 to 3.5 times target, and flat to last quarter. Looking at our ratios on an infrastructure-only basis, our payout ratio is approximately 77%, while our pro forma leverage is 3.6 times, both well below our targets of 100% and 4.0 times respectively. From a financial flexibility perspective, following the gateway acquisition, we continue to be well positioned with a staggered debt maturity profile with no maturities until 2025, and ample liquidity with the benefit of our upsized sustainably linked revolving credit facility, which was increased from $750 million to $1 billion following the gateway acquisition, which does not mature until 2028. Certainly a very strong financial position. In summary, we are very pleased with both our fourth quarter and full year results in 2023. Infrastructure results in the fourth quarter and for the full year represented new high water marks for the company, largely driven by the successful acquisition of the gateway terminal, as well as continued consistent results from the legacy infrastructure assets. Marketing ended the year well above our long-term run rate of $80 to $120 million, with a constructive environment providing some momentum as we move into 2024. With the gateway acquisition, we now have exposure to all key North American oil producing basins with a portfolio of assets that generate stable cash flows, all with a competitive advantage that would be prohibitive to replicate. And with this portfolio of assets and our strong and conservative financial position, we continue to present investors with an attractive value proposition, which includes being well positioned to continue to return capital shareholders through a safe growing dividend and the potential for share buybacks in the future. Before we turn the call back to Steve for some remarks regarding the announcement of his retirement today, I did want to thank him on behalf of not only myself, but also all Gibson employees for seven years of great leadership. Over to you, Steve.

You know, thanks, Sean. I'd like to provide some brief remarks regarding my intention to retire this year. It has been a true privilege to lead Gibson's talented employees over these last seven years. Together, we built a strong operational and financial foundation, extended our infrastructure platform and created peer leading value for our shareholders and positioned the company for future growth. With the company operating from a position of strength, now is that right time for me to retire and for the next phase of leadership to commence. I am confident in the team's ability to build off this momentum and drive further long-term growth and value creation. I look forward to remaining on as president and CEO until my successor is named. Over to you, operator, for any question.

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchstone phone. You will hear a three tone prompt acknowledging your request. Should you wish to decline from the polling process, please press star followed by the number two. If you're using a speaker phone, please lift your hands up before pressing any keys. Our first question comes from the line of Rob Hope from Scotiabank. Please go ahead.

Good morning, everyone. And congratulations on the upcoming retirement season. Thank you, Rob. Two questions on South Texas. Specifically in Q4 and I guess through 2023, it appears that the contribution from South Texas exceeded expectations. Can you maybe give a little bit more color on the key drivers there? Was it largely more of the LCCs? Was it incremental spot barrels? And as we look into 2024, is there an expectation that we could see some continued performance versus the base plan?

Yeah, I was kind of driven by two things, Rob. The first one was it was incremental throughput or spot barrels from existing customers. And that happened two different ways. First is several of our customers used additional windows in their loading, which drove additional volumes. And the second is, is the percent of VLCCs loaded greatly increased, where I think in the fourth quarter, I believe 80% of the vessels we loaded were VLCCs. And so how that actually increases versus our projections, where most of our projections were done on an Afromax and a loading window, which is that 750,000 barrels versus the 1.2 to 1.25 million barrels we can put on a VLCC. So you get that incremental volume and additional throughput fee, Rob. And that's kind of what's driven that. And so when you look into the first quarter, it looks like it's going to be kind of a record quarter for the asset. Both in January and February look really good. And we think March, when we look forward into March, March right now is setting up to be a record month ever for the terminal

as far as throughput

goes.

All right, good to hear. And then maybe just turning over to the contracting efforts at South Texas. Appreciate the updated language there. However, when you're in discussions with customers, what are the key sticking points? Is it term, the level of the toll, an understanding of where the barrels are, or is it kind of being put on a VLCC versus Afromax basis?

Yeah, it's really none of that, actually, Rob. I think we've been pretty aligned really with our customers around that. It's really with them setting up their upstream and downstream contracts, Rob. So setting up, making sure that they got firm volumes and transport coming into the facility and making sure that they have a really good view in contracting portfolio for the vessels that they do sell. As far as actually our discussions with the existing customers, talks have been really at or above existing rates and extending the contracts back out to new five and seven-year agreements, probably leaning towards those seven-year agreements, and additional loading windows. And so probably what the hangup has been is probably just getting it, getting the lined up existing capacity to get that volume into the terminal.

Appreciate the color. Thank you.

Our

next question comes from the line of Linda Izygailis from DD Securities. Please go ahead.

Thank you. And I have to add my sincere congratulations, Steve, on a very successful career and all the best in your retirement.

Thank you very much, Linda.

So I don't know if you or Sean are aware of whether the CEO search has started and where processes and if the board has outlined any expectations as to what the bookends of duration might be in any other context?

Yeah, I'll take that. I mean, obviously there's a lot of unknowns still, but the board is currently engaging an international search firm. They will look internally and externally. And I believe their number one focus would be Canadian candidate, but they also want to look into the states too, because at the end of the day, they want to pick the best candidate, whether or not that's internal or external. As far as timing, these things take more time than anyone really expects, but probably four to six months, Linda, if I was to guess. But that is just an estimate.

Thank you. Now, maybe we could just get some update on some of the crude flow and pricing dynamics that you're starting to see evolving potentially as Trans Mountain expansion is coming into service. Are you starting to see any impact maybe of crude going into storage in anticipation or anything shifting in terms of pricing and flows? And also, I'm just wondering in your infrastructure business, are you starting to see any sort of customer higher demand or lower demand for tank capacity given that egress out of the basin will be bottlenecked, but there's not much storage at the terminus of Trans Mountain by the dock. So that might shift kind of how tanks get used in the basin as well.

Yeah, that was a lot of questions there. Linda, I'm going to turn it over to Kyle, and then I'll kind of finish it off. Kyle's our Chief of Commercial.

Hi, Linda. Yeah, I mean, on your pricing question first, I would say yes, that the market is anticipating an impact on WCS differentials when TMX comes in service. That is creating some storage opportunities. That's part of what our marketing group has been able to capitalize on in Q4 and also Q1. And we see that as constructive going forward as well. The other piece on sort of the flow, I think that what customers are looking at right now or what the market is looking at is really a construction timing. TMX is saying Q2 still. We'll see from there. You'd look at line fill and operational wrap up. And then from there, really the development of the pricing at the dock and where the market is going to be for the barrel. So that's a lot there. And so I think our view is that it's going to be volatile throughout the year, and that'll lend its hand to opportunities in our marketing business, but also for our customers. I think our customers want to get comfortable with the in-service state of TMX, and they want to about supporting their infrastructure needs from a tanker standpoint. And I just think at this point, they're looking for some certainty on the pipe being in service and how it's going to operate from the get-go. So hopefully that answers everything. But to your question, yes, the pricing is appreciated on anticipation of it, but there's a lot of variables to get through, and our customers are sort of watching that closely as well as ourselves.

Yeah. And so at the end of the day, with the potential of it coming online, WCS has priced stronger into the future. And with that, it's given us some time-based opportunities in our storage at Hardesty, which lead to that $30-plus million opportunity that we've talked in marketing. Then you look at actually what's going on with TMX. We heard in December, we had customers starting to line up for line and field going into January. That got pushed back. And then they were going to push it back to March. And then just recently on the last kind of announcement, that got pushed back further. They're saying April, but I think this is kind of indefinite right now until they are able to solve the

bore issue and

to pull

that.

Thank you.

We

have our next question coming from the line of Jeremy Tannis from JP Morgan. Please go ahead.

Hi. Good morning.

Good morning, Jeremy.

Steve, just want to offer congratulations as well on a success at Gibson, and we'll miss you going forward. And just building off, I guess, the transition process and questions here, just wondering if, does this introduce any kind of broader questions on Gibson's strategic outlook going forward at this point? Does it change Gibson's role, I guess, thoughts in industry consolidation going forward?

Yeah, I think it's business as usual, right? We had a meeting with the board. We're going to develop and execute our strategy and start to develop five and 10-year type strategies as we go forward. I think it's business as usual. I'll be here for the next four to whatever, however long it takes to actually bring in a chairman, and then I'll be here as a consultant to work with the board as they need for the several months after that. But I think it's very much business as usual on a go-forward basis when we look at strategy, and I wouldn't read anything into my retirement at all.

Got it. Thank you for that. And maybe just kind of shifting gears towards capital allocation here, just curious, I guess, is there a point with dividend growth where the stock price where it is, where it doesn't feel like necessarily the market is rewarding a certain level of dividend growth going forward, or does that impact the rate of what dividend growth makes sense, and does pivoting towards buybacks a little bit more make sense in any scenario if the market doesn't respond to a certain level of dividend growth?

Yeah, thanks for that, Jeremy. I mean, as we've always said, we think steady annual modest dividend increases are important. It's a big part of the value proposition for investors. I think you've heard me say it before. If you're respond simply to market reaction to things, I think it can become a bit self-fulfilling at some point. You don't increase your dividend because the market at that point in time is saying maybe you're not valued appropriately, then you're probably going to get valued even worse. Our focus really here is on executing our plan, which we think is a long-term winner. We think we're going to see steady growth in our business, which is going to result in steady growth in our dividend. We are 100% acutely aware of where our multiple is right now in our current valuation. We think we are undervalued, certainly relative to peers, and that's something we're looking to close the gap on. If you speak to the dividend increase in particular, we exited the year at a 61% payout ratio. We executed a transaction that was close to 15% of creative digital cash flow per share. We made no dividend announcement at that time. We do that with our year-end results every year, and we continue to do so. We felt that this dividend increase was very much appropriate and reflective of our financial profile. We'll keep that capital allocation moving forward.

Got it. Thank you for that. Just a quick last one for me. I just wanted to know with regards to gateway expansion opportunities, if you could talk a bit more about what capital opportunities you see there, particularly as it relates to Cactus interconnectivity. First

off, when we looked at this asset and we looked forward and the more BLCCs that we said, we see quite a bit of growth opportunities without any capital. We believe we can grow this asset by 15% or maybe even more percent without any capital. When it comes to capital projects, Cactus is a very important one for us. It's mostly important for our customers because remember what I talked about earlier was access to supply is very critical to our customers. That's why the Cactus connection is important to us and really to our customers who are actually pushing this Cactus connection. One of the customers that we're driving forward with right now is a big supporter of this Cactus connection as they have quite a bit of production on that pipeline. The other one is probably the deepening project, which might occur later in the year. It takes a while to actually get all the permits in place to do the deepening project, but we're out right now getting bids on what does it take to deepen our dock to allow us to load vessels up to 1.4 million barrels, which ensures that any kind of reverse lidering, even with a lightly loaded Affermax, they can fully load a BLCC with one lidering offshore. Really, there are several ways that pays out. One is we're negotiating with their existing customers on increasing the MVC to help pay that out, but really where we see it is we actually load more volume on each vessel. We're seeing that today because we were able to raise the depth of one foot just through normal dredging that happened in December, and we're seeing us load more volume on the ships today. We're very optimistic about that opportunity. The other opportunity is adding more storage, specifically around as existing customers or even potentially some of our new customers that we're chasing want to bring in other grades of crude into the terminal. Right now, we have a very fungible system. We have WTL and WTI on a fungible basis for our storage, which is a big advantage that we think for our customers. Additional storage will be driven by additional windows and additional grades of crude that may come into the terminal. We believe we can build out an additional three tanks there and maybe add almost two million barrels of

additional storage with those three tanks. That's very helpful. Thank you.

Our next question comes from the line of Patrick Kenny from National Bank. Please go ahead.

Thank you. Good morning. Just on the early termination of the O&M agreement with Buckeye, just wondering if you had a bit more color on what gave you confidence to take over the operations of the terminal. I'm also just wondering if proving your operating capability of the terminal was a bit of a precursor to some of the contracting negotiations you're having right now.

I don't think it was early termination of the O&M agreement. I think that was just a normal transition of the O&M agreement that was January 1st. But as far as confidence, I'll hand that over to Omar Sape, who is

our

COO. Omar?

Hi, good morning. Thanks, Steve. Thanks for the question. I think on the onset of the deal, we put a migration team together, commensurate with Buckeye, who were very helpful. We mapped out a plan and set that timeline accordingly. Didn't do it too early, didn't do it too late, just set what was the appropriate time and when could we actively do that transition. Completed it seamlessly. Arguably, there was very, very minor hiccups and was superbly handled by the team. We've been operating for well over a month and a half and no issue. We put a lot of process, a lot of focus on the people, and then systems and managed that rough board.

And Pat, just to the comment about the early cut over, I would say the intent always was to cut over as soon as we could. Like not to get into the details of the M&A process, but as we got into the nitty-gritty, what was pretty clear is that a transition services agreement would take a bit of time to negotiate. So what we felt was best when we executed the deal was to execute the O&M agreement instead of transition services agreement. Our intent always was to cut over as soon as we could and quite frankly, we would have had confidence in a transition services agreement as well. So I think our messaging was conservative when we announced the deal, that it was a operating agreement for I believe up to 12 months, which was cancelable upon 30 days, but our intent always was to cut over really as soon as we could. And so this would have been more in line with our expectations certainly.

Got it. That makes sense. And then maybe Sean, just on the leverage ratio here, so pro forma, LTM, that's even 3.1 times kind of low end at your target range. Any update on when you might consider reinstating the NCIB or I guess what leverage ratio should we be watching out for before we might see you restart the buybacks?

Yeah, I mean from a pure leverage ratio, Pat, we're probably right about there. But the one thing I'd remind you is that we had a really strong first quarter in marketing last year. Even with our $30 million guide, we'll see some measure of reduction. So consistent with the messaging we had around our budget, we think that certainly a buyback is a consideration near the tail end of the year. The two factors that really are going to influence that is what's the actual level of capital we spend. We've got a $150 million growth capital target, 125 of that is sanctioned. And as largely in Canada, the other 25 would be predominantly gateway and we fully expect to spend that to the extent that that moves up or down. That would certainly be an influencing factor. And then the second one is how does the marketing business perform as we move through the year? So certainly something that we would see potential around. But even at that 3.1 times, let's see how marketing performs relative to last year because we could see a slight increase in our leverage ratio even with what we would consider a very strong first quarter at 30 or greater. And so that's also something that influences it. But I mean on an absolute basis, if you normalize marketing, at the low end of our leverage range is certainly where we consider restarting buybacks, depending on our view on capital spent.

Okay, that's great. I'll leave it there. Thanks, guys. Thanks,

Beth.

Our next question comes from the line of Robert Cattelier from CIBC. Please go ahead.

Hey, good morning and congratulations, Steve, on your retirement announcement and in particular your safety track record during your time at the company. I just had a follow-up question here on how you're ensuring volumes at the terminal to give your customers the confidence they need to recontract. Is there anything other than the Cactus pipeline that you're currently looking at to help develop the terminal and give the customers that level of comfort to recontract?

You know, we're connected to all the other pipelines really, the Epic, the Grey Oak, also another pipeline that goes into the Eagleford there. So I think the Cactus pipeline is kind of one missing link. We can get it through some exchanges through some of the other pipelines, but we need a kind of a direct terminal. And as far as us facilitating, it's just, our customers need to go find the transport and bring that volume in, and they're doing that actively. But we believe the Cactus pipeline will really help them develop a secure supply of volume. Those pipelines coming out of the Permian Basin into Eagleford are full, are close to full. And that's being driven by our terminal and the terminal next door to us. They're in Eagleside. Those two terminals provide the best net back for as far as anybody trying to export barrels out of the U.S. And so that's what's driven those two pipelines full. We do believe as the inter-harbor contracts start to expire in 2025 that a lot of volume will free up for our customers. That's going out of those terminals today.

Okay, that's helpful. And then I wondered if you thought of giving any more thought to opportunities to enhance returns that gateway through marketing expertise and what needs to be done there to initiate that?

We don't really

have that U.S. expertise right now. And right now, we have several of our customers are really large international traders. So we definitely don't want to step on any of our customers feet with marketing. And if we ever did trading in the terminal, it'd just be to help facilitate volumes coming into the terminal to facilitate their export activities. Not really in the type of optimization around that we do currently at Harstie or Edmonton.

Yeah, that makes a lot of sense. And just the last one for me, I'm kind of spitballing here, but recently we've had a pause in LNG export authorizations. What's your sense of stability in liquids exports? State another way. Do you think there's hearing anything about any restrictions on liquids exports?

I don't think any existing terminals are any real threat, Rob. But it may threaten some of these offshore terminals that are under discussion or initial development. Because they're still going into federal waters there. So that makes it quite a bit riskier for them as far as to get all their

final permits. Okay, that's helpful. Thank you.

We have our next question come from the line of Robert Kwan from RBC Capital Markets.

Please go back a couple questions here on Gateway. And Steve, you talked about, largely speaking, it sounds like the negotiations in terms of what you're controlling the customers is pretty well defined. And you pointed to the upstream logistics and supply. So you mentioned Cactus. I guess just what other things can we look for in terms of third party announcements or expansions and just overall, what gives you confidence that these kind of things that are outside of your control will come together such that you can execute the contracts by the end of the second quarter?

Well, I think we can execute the contracts now. I think that's just, but we'll just have to, we need to embed some options in there to allow them to increase their loading windows. And so that's probably where we'll push over the next month or two. But one of them, there's two pipelines that are looking to expand. One is Epic. They're looking to expand. And they have pretty significant expansion opportunity. Epic does. I've heard up to 400,000 barrels. And then the other one that can expand is obviously Red Oak. And Red Oak is out there right now with an open season. And so that's probably coming to a conclusion very soon. And I think that has layers of expansion across it. So those are really the opportunities. And that's a great time. Red Oak was the first, one of the other P66 projects. So I'm sorry about that.

I'll get, and then just on the gateway contracts themselves, you've talked about thinking that you can either keep the rates the same or potentially increase them. But there's a lot of moving pieces here. As you think about the extra loading windows, you think about that you're moving spot right now. I guess just as you distill it down to what you think the EBITDA coming out of gateway will be when everything is extended, is it, are you still thinking it will be very similar? Do you think that there's a potential for an uptick or how should we just think about the total impact EBITDA?

I mean, there's so many unknowns there as far as increasing. I said, even without any expansion, there's an opportunity without any real capital besides maybe the cactus connection, which is pretty minimal capital. I think we can grow that 15 to 20 without any 15 to 20% if we're successful. And I think there's even upside on top of that. But I would be, you know, I wouldn't want to be too optimistic this early

on

anything

above 15 to 20%. Okay, and on the deepening project, should we think about that as a growth project or are you just going to be looking at as a capital recovery rider?

I think it's a growth project, right? We're going to look to increase MVCs, which help backstop it. But we know they're going to load more volume on those ships and because that's a restraint right now. And so there's definitely a payoff for that project. It's probably in the three to four times type of payout.

Okay,

that's great. I appreciate the commentary and Steve,

all the best in retirement.

Thank

you,

Robert.

Ladies and gentlemen, just a reminder, should you have a question, please press star followed by the number one on your touchstone phone. We have our next question coming from the line of Ben Pham from BMO. Please go ahead.

Hi, thanks. Good morning. A couple of follow up questions on last topic of gateway and every contract and you've mentioned the potential 15 to 20% increase in EBITDA. And I think that's what I heard. Do you expect that to happen during Q2 2024? Is that your outlook in three years time? And do you expect that from a starting point of your record volumes in March or should we normalize for the strength and the spot volume side of things?

I think

it'll be a gradual thing. I think we'll see some of it hopefully just through this increased volume throughput that I talked about in March and hopefully that'll carry on through really the second quarter. And then I think we'll see an uptick in the second half. And then I think it's really on a quarterly basis. I believe we'll see growth in that EBITDA business, Ben. I think I fly out Sunday to go down there and talk to some customers. So we're continuing to press forward with this opportunity.

Okay, so it's mainly, it looks like it's a mix of replacing existing contracts and it's not a situation where you add

additional throughput by adding additional load windows. So loading more ships in a month on a contracted basis. And then one of the big surprises is that we're loading far more VLCCs, which gives us an incremental throughput volume on every ship that we do load. So I believe we had record in December where we loaded, I believe, how many VLCCs on board in December? Was it 17? 16 or 17 VLCCs, which is, we didn't have that in our forecast at all. So that's one of the things that's really kind of pressing us forward and being optimistic that we'll be able to you know, meet that nine times or better as we move forward. Okay,

got it. And maybe switching to the search process now and your retirement. Eve, you've mentioned in early comments, the board may be preference for a Canadian candidate. Well, I guess we'll wait and see. I mean, is that suggesting post-gateway re-contracting that there's maybe a suggestion of the Canadian business reinvigorating with growth? And to that, can you remind us the US side of things, how staffing has been involved in your lieutenants down there since you've started in the Permian region again?

Oh, I wouldn't read a lot into, you know,

that the lean in other than, you know, 75 to 80% of our business is here in Canada. And so that's, and you know, those relationships with our existing customers here, very important. And I think that's probably the leaning force, why they would look for a Canadian first. And then as far as my staff down in the US, we were able to recruit a very good commercial person that had been the commercial person for the terminal. And then we've added some existing commercial support to really beat that up. And so that commercial team is very focused on continuing to drive and develop opportunities around Gateway.

Okay, and maybe just a last one, DRU phase two, how do you think about that project now of record volumes in Western Canada rail picking up quite a bit as well?

That's a tough one, Ben. You know, I would say that is cooled, our discussions around that is coming on. And our customers really want to understand how TMX impacts the market on a long term basis. Also, you know, as upstream continues to develop these brownfield projects, and as Clearwater play continues to enlarge and develop, I do think long term that, you know, three to four, three years out, 2026 is probably the opportunity where we may be able to actually re-contract, or not re-contract, but add a DRU as the TMX pipeline fills up, and potentially even add storage down four or five years down the road too. So they're at hearty again. Yeah, we are optimistic in Canadian

crude

oil production.

Okay, that's great call, Steve. Thank you. Thanks, Ben.

Thank you. There are no further questions at this time. I'd now like to turn the call back over to Polak for final closing comments.

Thank you, Lara. Thank you for joining us for 2023, fourth quarter and full year conference call. I'd like to remind you that there's supplementary information available on our website, gibsonenergy.com. And if you have any further questions, please reach out at investor.relations at gibsonenergy.com. Thank you.

Thank you, ma'am. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a lovely day.