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Edited Transcript of GEI.TO earnings conference call or presentation 25-Feb-20 2:00pm GMT

Q4 2019 Gibson Energy Inc Earnings Call

Calgary Jun 8, 2020 (Thomson StreetEvents) -- Edited Transcript of Gibson Energy Inc earnings conference call or presentation Tuesday, February 25, 2020 at 2:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Mark Chyc-Cies

Gibson Energy Inc. - VP of Strategy, Planning & IR

* Sean M. Brown

Gibson Energy Inc. - Senior VP & CFO

* Steven R. Spaulding

Gibson Energy Inc. - President, CEO & Director

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Conference Call Participants

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* Jeremy Bryan Tonet

JP Morgan Chase & Co, Research Division - Senior Analyst

* Matthew McKellar;RBC Capital Markets;Analyst

* Patrick Kenny

National Bank Financial, Inc., Research Division - MD

* Robert Catellier

CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research

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Presentation

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Operator [1]

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Good morning, ladies and gentlemen, and welcome to Gibson Energy's Fourth Quarter and Full Year 2019 Conference Call. Please be advised that this call is being recorded.

I would now like to turn the meeting over to Mr. Mark Chyc-Cies, Vice President of Strategy, Planning and Investor Relations. Mr. Chyc-Cies, please go ahead.

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Mark Chyc-Cies, Gibson Energy Inc. - VP of Strategy, Planning & IR [2]

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Thank you, operator. Good morning, and thank you for joining us on this conference call discussing our fourth quarter and full year 2019 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.

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 SEDAR.

Now I'd like to turn the call over to Steve.

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Steven R. Spaulding, Gibson Energy Inc. - President, CEO & Director [3]

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Thanks, Mark. Good morning, everyone, and thank you for joining us today.

We continued to deliver strong, consistent operating and financial results in the fourth quarter, which caps another outstanding year for Gibson. I'm pleased to say, for the second year in a row, both our adjusted EBITDA on a continuing basis of $463 million and distributable cash flow on a combined basis of $309 million were new highs for Gibson.

The key driver of this increase was the growth in our Infrastructure segment, which posted segment profit in the fourth quarter of $86 million, a $14 million or 19% increase over the comparable quarter in 2018. Our Marketing segment had another strong year despite the WCS to WTI differential averaging under $13 per barrel in 2019, less than half what it averaged in 2018. The Marketing organization was able to earn $195 million, only a $9 million decrease from 2018.

Alongside these strong financial results, we continued to deliver and advance our strategy. Though it seems like a long time ago, in 2019, we completed the sale of our Canadian Trucking and Environmental Services businesses. With these transactions, we fulfilled the divestiture goals we set out at our January 2018 Investor Day. We sold all the noncore businesses on schedule and for total proceeds at the midpoint of our target range. Linking it back to our strategy, through the dispositions and continued investments in our core Terminals business, we succeeded in transforming Gibson into a focused oil infrastructure company.

Near the start of 2019, we placed in service our first phase at the Top of the Hill at our Hardisty Terminal, adding 3 tanks, representing 1.1 million barrels of storage. In November, we brought an additional 4 tanks on ahead of schedule, adding another 2 million barrels. In total, during 2019, we added 7 tanks or 3.1 million barrels, representing roughly a 35% expansion of our Hardisty Terminal.

Keeping our momentum at Hardisty going, during the year, we also sanctioned 3 additional tanks, which we expect to be placed in service late 2020. Based on our existing discussions, we have the strong line of sight to contract 2 to 4 tanks again this year.

Sanction the DRU at Hardisty with our joint venture partner, USD, is significant for Gibson. It provides us a platform to deploy additional capital backed by long-term contracts. It allows us to leverage our position at Hardisty to offer additional services to our customers on top of tankage and access to HURC Unit Train Facility. New customers interested in the DRU will need tankage and they'll need a long-term rail contract. We often speak about the ability to build tankage at Edmonton if TMX proceeds and additional tankage at Hardisty if KXL enters service. With the DRU, we are confident we can continue to grow without these pipeline projects.

We have the first 50,000 barrels a day of DRU capacity fully sanctioned, finalized all agreements with our customer and expect to have regulatory approvals soon and expect to begin construction in a few months. On the design, we allowed -- the design we pick will allow us to build up to 250,000 to 300,000 barrels a day of inlet capacity in 50,000 barrel increments. We're in discussion with several producers, refiners and integrated customers and are hopeful we'll be able to sign our second customer by the end of the third quarter.

In the U.S., during the fourth quarter of 2019, we placed the Pyote East Pipeline in service. It's the first infrastructure asset Gibson Energy has ever built in the U.S. The commercial group has finalized agreements with several adjacent producers where, today, we have nearly 250,000 acres dedicated to our system. We continue to talk to other producers, midstream companies in the area and expect to further extend our reach through additional connections of our existing system. Until we contract tankage at Wink, we will focus our capital on low-cost, high-return bolt-on and connection projects.

Rounding out the infrastructure growth projects we placed into service in 2019, I would also like to mention the Viking Pipeline, the expansion of the HURC Unit Train Facility to 3.5 trains a day and the expansion of our Moose Jaw facility in Saskatchewan. In total, these projects help contribute to the infrastructure capital of $290 million in 2019 inclusive of business development activities.

The result of this investment was the growth in our fourth quarter Infrastructure segment profit of 2019 to $86 million. When compared to the fourth quarter of 2017, segment profit has grown $30 million or over 50% since we laid out our strategy in January of 2018. And looking at our growth, at the distributable cash flow per share basis, the 2019 figure of $2.13 per share is nearly a 10% increase over 2018 and nearly a 70% increase from 2017. And importantly, the increase is being underpinned by the growth in our long-term stable Infrastructure cash flows. Although strong Marketing performance has been a major driver, the increased cash flow is a result of our Infrastructure growth and the strong Marketing performance has substantially strengthened our balance sheet.

We exited the year with a leverage of 2.7 and a capacity to fund over $400 million in growth capital in 2020. Reaching investment-grade during the year was a major achievement. It provides access to the hybrid bonds and preferred equity markets to help us fund outside capital if needed. Also, it will reduce our interest cost $15 million to $20 million a year, which is a good portion of our annual cash flow target.

As a result of the success we realized on all these fronts, I'm very pleased we were able to deliver on the last tenet of our strategy to offer a stable and growing dividend. Yesterday, the Board of Directors approved an increase of the quarterly dividend by $0.01 per share to $0.34 per share per quarter or $1.36 per share a year. In determining the increase, the Board and management were very aligned in the importance in remaining fully funded given the size of our existing capital program as well as our confidence in continued growth. It is our intention to target growing the dividend while ensuring we adhere to our financial governing principles. The Board and management will continue to balance targeted dividend growth with maintaining a strong financial position and a fully funded capital program.

Beyond our financials and operating results, we're very excited with the actions we are taking on both the ESG and corporate social responsibility front. During the year, we took several important steps, including the formalization of a Board oversight for sustainability through an environment, social, governance, health and safety committee and the Board adopting a diversity inclusion policy.

We are not starting from a standstill. Many of the concepts within ESG have been part of Gibson for a long time. For example, on safety, we have continuously sought to improve our performance each year and move towards the aspirational goal, 0 injuries. We have tracked both leading and lagging indicators and our compensation is already tied to safety and certain environmental metrics.

On the capital project side of our business, through the innovation of our project team, we were able to expand our Moose Jaw facility to increase its production capacity by approximately 30% with no increase in GHG emissions, which effectively reduced our facility's GHG emissions intensity by approximately 20% to 25%. This is a great example of us continuing to grow our business, while at the same time optimizing our carbon emissions footprint.

Going back to diversity for a moment. To better incorporate gender diversity in our workforce, specifically our management levels, in 2019, we modified our recruitment practices to drive for equal gender representation of applicant interviews. Changes like this have already started to pay dividends with 34% of our 2019 new hires being female versus 19% in 2018, allowing us to increase female representation in our workforce from 31% by the end of 2019 compared to 26% in 2018, and female representation in management increased to 29% from 25% in 2018. We believe having a work environment that fosters diversity contributes to our business success and drive innovation throughout our company.

An example that comes to mind is with respect to the community investment. For 2019, we increased our annual community investment spend by 70% over 2018. For 2020, we have increased our annual community investment budget to a company-high of $1 million. These increases are because we believe that when our company succeeds, the communities in which we operate should also share in this success.

That said, we recognize that ESG is a journey. We did a lot of foundational work in the last year and our efforts in this space continue to evolve. In many areas, we believe we are starting from a good point though there are certainly gaps and even just areas where we want to get better at. One of these areas we want to improve is on disclosure side, which we will soon close as we intend to publish our inaugural sustainability report in May.

In summary, we are pleased with the strong execution and delivery in 2019. For the second straight year, Gibson's stock was a top performer in the peer group on total return basis, and we believe we're well-positioned to continue to execute. We have sanctioned a capital program of $300 million for 2020, which gives us line of sight to sustaining our growth into 2021. We remain confident in our ability to deploy $200 million to $300 million per year or more in capital into high-return, contractual, contracted infrastructure projects. We have line of sight of sanctioning additional tankage in 2020 and are confident we will sanction additional phases at the DRU. Our financial position is very strong. We are fully funded with Marketing outperformance providing additional cushion. Leverage and payout both remain well below targeted levels. And we have been able to restart our dividend growth.

As I say on each of our calls, the objective is very clear. We need to keep executing our strategy, keep doing what we said we would do.

I will now pass it over to Sean, who will walk you through the financial results in more detail. Sean?

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Sean M. Brown, Gibson Energy Inc. - Senior VP & CFO [4]

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Thanks, Steve.

As Steve mentioned, we had a very strong 2019, setting new high-water marks for both adjusted EBITDA from continuing operation and distributable cash flow during the year. In both the full year 2019 and in the fourth quarter, the results were driven by a very strong predictable contribution from the Infrastructure segment. Marketing for the fourth quarter was roughly in line with our expectations, although performance continues to remain very strong relative to the long-term annual run rate of $80 million to $120 million.

Looking first at our key metrics on a fourth quarter basis. Adjusted EBITDA from continuing operations of $126 million was $16 million or 14% higher than the $110 million earned in the third quarter of 2019 after adjusting the third quarter for a $12 million credit related to the amendment to the company's retirement benefit plan.

Breaking that down by segment, Infrastructure increased by $4 million, reflecting a partial contribution in the fourth quarter for the 4 tanks brought into service at the Top of the Hill in November as well as a limited contribution from the Pyote Pipeline, which entered service but was still ramping up through the quarter.

Marketing reported segment profit of $46 million and adjusted EBITDA of $52 million, which was modestly ahead of our expectation. On an adjusted EBITDA basis, this was a $14 million or 37% increase from the third quarter with both the crude oil and refined product businesses stronger in the fourth quarter than the third quarter. On a segment profit basis, Marketing was $3 million lower in the third quarter as a result of a swing from a net unrealized gain of $12 million in the third quarter to an unrealized loss of $6 million in the fourth quarter, a change of $18 million between the 2 quarters.

Working down to distributable cash flow, which was up $4 million in the fourth quarter relative to the third quarter of this year, replacement capital was higher in the fourth quarter primarily as a result of certain required projects at Moose Jaw plus several other smaller projects we needed to perform before year-end and lease payments under IFRS 16 increased slightly due to additional railcars entering our fleet. These were partially offset by lower cash taxes and interest.

Relative to the fourth quarter of 2018, adjusted EBITDA from continuing operations was $8 million lower this quarter. Recall that Marketing benefited at the end of last year from the very wide WCS to WTI differential, resulting in a $16 million decrease in adjusted EBITDA for the Marketing segment. As Steve spoke to earlier, what is most important is the growth of our Infrastructure segment, increasing by $14 million or about 20%, largely offsetting the decrease in Marketing, albeit with much higher-quality cash flows.

Turning over to a year-over-year comparative. 2019 was an even stronger year than a very strong 2018. Adjusted EBITDA from continuing operations of $463 million, adjusting for both the future remediation provision recorded in the second quarter and the credit related to the amendment of the company's retirement benefit plans in the third quarter, was a $6 million increase from 2018. Similar to the discussion on the fourth quarter, an increase in Infrastructure offset a decrease in Marketing. Adjusting for the future remediation provision, Infrastructure segment profit in 2019 increased by $31 million or 11% over 2018.

Segment profit for Marketing was down $8 million where, despite the much narrowed differentials, the Marketing group was able to find other opportunities through the year after a very strong start in the first quarter of 2019 due to volatility experienced following the prior Alberta government announcement of production curtailment in December 2018. On a distributable cash flow basis, the 2019 figure of $309 million was $27 million higher than recorded in 2018.

Further to the factors I discussed at EBITDA level, the $33 million decrease of cash flows from divested businesses was more than offset by a $45 million decrease in current taxes in 2019 due mostly to a series of onetime tax credits we were able to claim. Distributable cash flow in 2019 also benefited from slightly lower interest and maintenance capital, together representing a $6 million delta.

As Steve mentioned, one of the key milestones in 2019 on the finance side was securing our investment-grade credit rating, which has already reduced our cost of capital and expanded our access to capital. As part of shifting our capital structure to an investment-grade model, we recently completed an extension of our credit facility into 2025 and upside capacity to $750 million. While we are only $50 million drawn on the facility at year-end, the increased capacity will make sure we have ample liquidity and flexibility to fund our capital program without having to unduly rely on the debt capital market at times that may not be optimal.

In terms of financial position at the end of 2019, debt-to-adjusted EBITDA was 2.7x, well below our 3 to 3.5x target. The payout ratio was 62% at year-end, which is also well below our 70% to 80% target range. On both of these metrics, our bias remains to stay at the lower end of these ranges, especially given the increased number of capital opportunities we see, but it is important to recall that as part of our financial governing principles, we think about those metrics in the context of a much more sustainable, long-term contribution for Marketing. Specifically, we want to keep our leverage on an Infrastructure-only basis at or below 4x and we target the dividend payout ratio being less than 100% on an Infrastructure-only basis. In addition, remaining fully funded is paramount to us. That said, we very much would like to see outperformance in Marketing continue as it recharges our balance sheet and help us fund Infrastructure growth capital.

Looking into the first quarter of 2020, we expect adjusted EBITDA for Marketing to be between $30 million and $40 million with a bias to the higher end of that range, which is above our long-term run rate of $20 million to $30 million per quarter. So while we do expect that both leverage and payout will remain below our target levels in the near-term due to Marketing outperformance, we will continue to remain true to our capital allocation philosophy, whereby our dividend is underpinned by Infrastructure earning and Marketing outperformance is first invested into high-quality growth capital projects and second, return to shareholders via buyback to the extent we do not have visibility to being able to reinvest those earnings back into long-term infrastructure.

In summary, we remain in a very solid financial position. Financial performance in 2019 was very strong with Infrastructure continuing to grow and Marketing continuing to outperform. We continue to check all the boxes on our governing financial principles. We remain fully funded for all our sanctioned capital with payout and leverage well below target levels. And having reached investment-grade in 2019, we'll seek to further reduce our interest cost in 2020. We made a lot of progress in 2019, and we expect that will position us for success in 2020 and beyond.

At this point, I will turn the call over to the operator to open it up for questions.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Our first question comes from Jeremy Tonet with JPMorgan.

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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [2]

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I just wanted to start off with the DRU project there. And as far as the incremental contracts, as you describe it there, it seems like it won't be until 3Q, I guess, you're expecting more signings there. Just wondering how far through these conversations are where it still seems it's a little bit a ways? And I guess, any color you could provide with what size this could be? Do you expect to fill the rest of the facility? Could it be more?? Could it be less? I guess, just any other color on how you think that's tracking at this point.

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Steven R. Spaulding, Gibson Energy Inc. - President, CEO & Director [3]

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So Jeremy, this is Steve. We are negotiating with numerous parties, but I would say 2 of them are more advanced. Those 2, I've both spoken to their Boards about the opportunity. And when you think about a DRU, it's really the contracting that is extremely complex because it takes literally almost 16 separate agreements to -- when you think of rail, rail unload, rail load, storage, DRU, railcars, numerous rail companies, it's a quite complex transaction commercially and that's why we push it out to third quarter. But 2 of the people that we're currently negotiating with have had discussions with their Boards within the last week or 2.

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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [4]

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That's very helpful. And maybe turning over to rail for a bit here. A lot of interruptions given everything that's happening there in the network. And just wondering if you could walk us through how you see that impacting Gibson on any different levels that you see there.

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Steven R. Spaulding, Gibson Energy Inc. - President, CEO & Director [5]

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Well, probably the most imminent one would be much Moose Jaw because all the products out of Moose Jaw are sold via rail. They are in kind of southern Saskatchewan, so they enter the States pretty quickly. And so -- but we are seeing rail backups because of the reduction in speed in Saskatchewan. But when you think of that, it takes more railcars, so your cost, your operating expense goes up.

As far as the DRU, the one thing about the DRU is the C5 plus and the condensate is extracted out of that dilbit and so you have a product that doesn't -- won't spill out or catch fire. So we believe it's a much safer product to haul. It's actually classified as non-haz, which would not be limited on speed.

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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [6]

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That's helpful. And I guess, maybe on the benefit side as far as any spreads out there that could work to Gibson's advantage because of the rail situation.

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Steven R. Spaulding, Gibson Energy Inc. - President, CEO & Director [7]

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I don't know that this caused a big change in spread at this moment. We did move a couple of unit trains out with a partner in January and we've moved some manifests out of Edmonton in January. That spreads kind of came in now. And I don't believe -- I think we parked most of those cars.

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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [8]

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Got it. And turning to the dividend real quick here. Just wondering if you could provide any more color as far as what type of dividend growth do you think makes sense for Gibson that Gibson wants to offer to the market here? Maybe the cadence of how you see those increases materialize would be helpful.

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Sean M. Brown, Gibson Energy Inc. - Senior VP & CFO [9]

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Thanks, Jeremy. It's Sean here.

As you all know, dividend is a Board decision, but we did discuss this at the Board level yesterday. I think what we'd say in future dividend growth is that we definitely see the benefit and the importance of annual dividend growth. We were very considerate in increasing it this quarter, and that was with the lens of being able to increase it annually as we move forward here. That's going to be backstopped by continued growth in our Infrastructure earnings.

As we think about dividend growth though, we will be very measured as we think about it and we'll review it annually, but the way we look at is very much in a total return to shareholders basis. And as we look forward and think of the capital opportunity, the projects we have, that will be a key consideration for us as we move forward. So I think the messaging would be that we'll be very measured in how we think about dividend growth, but do expect that it will be something that we review annually. And by reinstating it now, we would expect that you can see annual increases.

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Jeremy Bryan Tonet, JP Morgan Chase & Co, Research Division - Senior Analyst [10]

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That's really helpful. And just last one, if I could. We've talked about before, the Permian just being really kind of hypercompetitive overall. And wondering if you could just refresh us as far as your strategy in the Permian here. I mean I see you've got quite a notable uptick in acreage dedication there, so that's quite impressive to hit that number. But just wondering what you could share with us as far as kind of any guardrails that you're employing to make sure you hit your targeted rates of return there?

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Steven R. Spaulding, Gibson Energy Inc. - President, CEO & Director [11]

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And Jeremy, kind of where our gathering system is located is kind of right on that edge of the central platform in the Delaware Basin. I wouldn't say we're in a really hypercompetitive area, especially with the backbone we've built through the -- first project. We did sign up 2 additional producers, which raised that acreage to 250. We continue to look at probably another 2 to 3. When you think of our strategy there, our strategy is not a traditional gathering strategy. It's more of a central delivery point strategy where the producers actually gather into us and we just build one kind of central delivery point. So we're not continuing to deploy capital to stay in the same place.

I would say it got off to a little slower start than expected on volumes, but it's probably operational issues with our -- kind of our anchor tenant. I would say our big driller in the area, they continue to delineate the area, but they're very positive. If the drilling plans go forward that they have shown us, we'll be extremely happy.

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Operator [12]

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Our next question comes from Patrick Kenny with National Bank.

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Patrick Kenny, National Bank Financial, Inc., Research Division - MD [13]

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Just to follow-up on the U.S. strategy there, curious if the recent pullback in oil prices and, I guess, increase in some of the macro headwinds has had any impact on the pace of discussions you're having for new tankage down in the Wink out there?

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Steven R. Spaulding, Gibson Energy Inc. - President, CEO & Director [14]

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Thank you, Patrick. I would say, when we did the economics, we did it on lease commitment drilling, and that lease commitment drilling has continued to move forward. We did have one producer that was doing just kind of additional drilling at another rig, drilling kind of in a shallow zone there. They did shut that down. I would say as far as discussion with additional producers, I think it's kind of at the same pace it has been last year. We haven't seen a real drop off there. We believe, by the fourth quarter, we'll still hit that $5 million run rate in the fourth quarter. It will be kind of a slow ramp-up. We think it will probably pick up stronger late in the third quarter. And then by the fourth quarter, we will see that $5 million run rate which we've talked about.

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Patrick Kenny, National Bank Financial, Inc., Research Division - MD [15]

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Okay. Great. And then just moving over to Marketing. It looks like contributions are still tracking above normalized levels, but just any comment on -- with the Enbridge mainline offering being out there and opening up the priority access to some of the smaller producers through these requirement contracts, longer term, I guess, once that comes into place, if some of the smaller producers sign up, do you see any sort of impact that that could have on volumes or margins for the Marketing group?

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Steven R. Spaulding, Gibson Energy Inc. - President, CEO & Director [16]

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That's not how most of our -- very little of our earnings is really in that area, Pat. Most of our earnings really are around our Moose Jaw and then at Hardisty and Edmonton, not in the long-haul down the States. So I don't see that impacting us. One thing about -- with Enbridge is just making sure that we continue to have ratable supply into Moose Jaw is important to us.

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Operator [17]

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Our next question comes from Robert Catellier with CIBC Capital Markets.

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Robert Catellier, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research [18]

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Congratulations on the dividend increase and that crowning achievement. Just wanted to start on the rail and just dig down in that a little bit further. You gave your initial comments on what it means on the operations, but how does the DRU contracts respond to rail stoppages?

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Steven R. Spaulding, Gibson Energy Inc. - President, CEO & Director [19]

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They are not contingent on rail stoppages. They are just straight-up take-or-pay, Robert. So in the event that there's a rail stoppage, that does not impact our take-or-pay. It may -- other than potential force majeure that could lengthen the contracts out.

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Robert Catellier, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research [20]

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Right. Okay. Just the 2 policy issues here, I guess, you can call frontier policy issue to some extent. But what are the implications do you think for just general growth in the industry given what draw that frontier application might mean? And secondly, offsetting that obviously, there's been a court ruling about carbon taxes. So when you look at those 2 things holistically and what they could mean to growth, what do you think the impacts are with respect to growth in the business and specifically with the oil sands customers?

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Steven R. Spaulding, Gibson Energy Inc. - President, CEO & Director [21]

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Yes. I was disappointed to see that they pulled back yesterday. I think even Teck themselves are looking for really a sustainable offtake, right? I mean, how do you move forward with any opportunity until you have a sustainable offtake, whether or not that's TMX, KXL, Line 3 or really DRUs? So I think we need to provide the producers sustainable offtake for them to have viable projects. Obviously, the carbon tax was a positive thing.

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Robert Catellier, CIBC Capital Markets, Research Division - Executive Director of Institutional Equity Research [22]

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Yes. And just finally, what is the EBITDA associated with the injection stations that might be held for sale?

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Steven R. Spaulding, Gibson Energy Inc. - President, CEO & Director [23]

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U.S. injection? Yes. No, I mean, it's de minimis, Robert. I mean, that's a business that we've ramped down over time and continue to ramp down. So I mean, contribution would be negligible right now.

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Operator [24]

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(Operator Instructions) Our next question comes from Matthew McKellar with RBC Capital Markets.

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Matthew McKellar;RBC Capital Markets;Analyst, [25]

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I'd just like to build on Jeremy's question on the dividend and just ask you to refresh us on your thoughts on capital allocation given where you finished the year and the dividend increase. So if you had additional capital or funding room versus the current plan, either because of stronger results or less spending than anticipated, would you look to further delever, pay out more in dividends, buy back shares or do something else?

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Sean M. Brown, Gibson Energy Inc. - Senior VP & CFO [26]

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Thanks for that, Matt. I mean, nothing has really changed there. We had come out in January of '18 with sort of our overarching capital allocation philosophy. We reaffirmed that in our April Investor Day last year. So even with the dividend increase and where we currently sit on a leverage and payout ratio basis, that doesn't change at a very high level.

As I said, we do favor measured annual dividend increases consistent with growth in our Infrastructure cash flow as we move forward if we have Marketing outperformance. So if you go beyond that to the extent that we have excess cash flow and as we look at our capital opportunities in front of us, it is clear that that excess cash flow is in excess of that capital opportunities and that excess cash flow comes from our Marketing outperformance and we would buy -- do share buyback. But from a capital allocation philosophy, first and foremost, it is -- if we have an opportunity to invest in our Infrastructure growth projects at a 5 to 7x multiple, underpinned by contracts that we see throughout our portfolio, think 10 years with investment-grade counterparties, we will continue to do so. We will favor measured annual dividend increases as we move forward. And if there is excess cash flow beyond that, then we would likely look to return capital to shareholders through share buyback.

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Operator [27]

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And I'm showing no further questions at this time. I'd like to turn the call back to Mark for any closing remarks.

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Mark Chyc-Cies, Gibson Energy Inc. - VP of Strategy, Planning & IR [28]

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Thank you, Catherine. And thank you for joining us on the 2019 fourth quarter and year-end conference call.

Again, I would like to note that we have made certain supplementary information available on our website, gibsonenergy.com. If you have any further questions, please do reach out to us at investor.relations@gibsonenergy.com.

Thank you for joining us. Have a great day. Bye-bye.

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Operator [29]

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Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect. Everyone, have a great day.