Earnings Call: Q1 2021

May 4, 2021

Good morning, ladies and gentlemen. Welcome to Gibson Energy's First Quarter 2021 Conference Call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Mr. Mark Hetchess, Vice President, Strategy, Planning and Investor Relations. Mr. Hetchess, please go ahead. Thank you, operator. Good morning, and thank you for joining us on this conference call discussing our Q1 2021 Operational and Financial Results. On the call this morning from Gibson Energy are Steve Spalding, 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. Thanks, Mark. Good morning, everyone, Thank you for joining us today. I'm pleased to say that we had a solid start in 2021. In terms of our financial results in the Q1, advancements on the commercial front and the development of our ESG and sustainability Each of which I will speak to in our prepared remarks today. Looking at the Q1 financial results, infrastructure adjusted EBITDA of 109,000,000 Was well above our target. But after normalizing some items that Sean will speak to was right at our run rate outlook of $100,000,000 While we seem to speak to this each quarter, including every quarter in 2020, It's hard to overstate the resilience of our Infrastructure segment. Though our marketing margins have been well below Our long term run rate across the last three quarters, our payout ratio 72% remains at the bottom end of our target of 70% to 80%. Also leverage at 3.1 times is at the bottom end of our 3 To 3.5 times target range. Our balance sheet remains very strong, including being fully funded For all capital, marketing adjusted EBITDA of $3,000,000 Came in slightly above our breakeven outlook. So far, 2021 is shaping up consistent with our comments on our last earnings call. The challenging environment from 2020 has persisted. However, 2nd quarter marketing conditions are improving and we continue to expect marketing performance to improve through the balance of the year. Marketing outperformance tends to be very lumpy, the few number of events driving a good portion of the year's P and L. As we mentioned on our last call, one area where we've seen a noticeable improvement coming into 2021 Within our commercial discussions, right at the end of the Q1, we announced a long term terminal service agreement with Suncor, Our principal customer at our Edmonton terminal. The agreement specifies several contracts into one agreement and also extended their aggregate term. As part of the agreement, we announced the sanction The Biles fuel blending project, which brings us to having sanctioned about 2 thirds of our capital target of 200,000,000 and capital for this year. This project is ESG positive as it aligns with energy transition And I really like the 25 year term. The execution of the agreement and the sanctioning of the biofuels project Demonstrates the long term need for our Edmonton terminal by one of the most prominent counterparties in Canadian Energy. We're also pleased to say that other commercial discussions continue to advance. On the tankage front, we're in numerous conversations with customers for tankage at both Edmonton and Hardisty. The key drivers for tankage at Edmonton are to support shippers on TMX, optimize producer netbacks To meet stream requirements and to optimize our customers' crude oil between Edmonton and Hardisty without having to physically move that barrel. At Hardisty, we leased out the marketing tank to a 3rd party. We believe this will turn into a long term lease And we continue to progress talks with numerous customers with storage needs at the harvesting facility. At the DRU, we have interest from multiple producers and refiners. With the first phase coming into service in less than 3 months And given it's a new product, customers would like to see how that market develops. We've continued to see this as The complicated set of agreements and our timeline for a second customer remains for late 2021 or early 2022. Shifting to ESG. We took a major step forward during the quarter By setting ESG and sustainability targets, I put a lot of thought into making sure these targets were impactful to Gibson Brent is best in class in the Canadian midstream space on both an emissions per dollar revenue basis And per barrel throughput basis, we build on this by reducing our GHG intensity at our facilities At 30% by 202540% by 2,030, we will cut our Scope 2 emissions in half By 2025 and eliminate them entirely by 2,030. Importantly, we know how to achieve these targets. Diversity and inclusion is a major focus at Gibson. Today, our Board is 1 third women. By 2025, we want to reach at least 40% and with at least one member providing Racial, ethnic, minority or indigenous representation. Women already comprise 37% of the workforce and 30% of management. Our target is for women to comprise 43% to 45% We want to reach 40% to 45% women in leadership by 2,030 with a 2025 goal of 33% to 40%. We already have the programs in place to attract women to Gibson and to ensure equal representation throughout the recruitment process. We will remain a merit based organization that will treat all employees fairly. With our very low employee turnover rate, we feel these are ambitious goals. We also continue to focus on the communities in which we operate. We expect to give at least 5,000,000 to community initiatives through 2025 with a minimum of at least $1,000,000 each year. We also want our employees to engage and give back to our communities. Over the next 5 years, Our goal is to maintain our leadership and employee giving by continuing to average at least 80% participation from our employees. The last target I'd like to mention is on health and safety. In 2020, we launched our Mission 0 program Focus on safety. We want to be best in class and that's why our target On the safety front is for us to be the top quartile amongst peers. As you know, one of our overarching goals is to remain a leader in sustainability and ESG. On the back of our targets announcement, MSCI increased the rating to AA, Which would be the highest rating among any of our North American peers. And looking across the broader suite of rating agencies, We are the leader relative to all peers in our industry. Sean will speak to this in greater detail. A couple of weeks ago, we became the 1st public energy company in North America to transition our principal credit facility To a sustainability linked structure, by integrating our credit facility and capital structure With our ESG targets, this demonstrates a clear commitment to achieving these goals. We believe our progress on ESG and sustainability demonstrates our ability to deliver a meaningful way When we make something a strategic priority. It was only a year ago when we released our first sustainability report And we're somewhat proud of how far we've come. At the same time, we're also very humbled by the journey It is still in front of us. To remain a leader, we're going to have to continue to push hard going forward. Again, we feel we had a very strong start to 2021. We delivered Financial results in line with our expectations and advance on commercial and ESG initiatives. Just as important We remain very well positioned going forward. Our infrastructure business remains solid. It's at that $100,000,000 per quarter run rate And we'll increase again when we put the DRU in service in the coming months. We feel very comfortable in our ability to deploy $150,000,000 to $200,000,000 per year without sacrificing returns. We just completed a comprehensive look back. And with roughly $1,000,000,000 of capital we've deployed over the last few years, We've certainly been at that 5x to 7x EBITDA build multiple. Marketing conditions are improving and we continue to expect marketing performance to improve through the balance of the year. And our balance sheet is very strong and we're fully funded and our dividend remains very well underpinned by our stable Long term infrastructure cash flows. We will remain conservative in our approach to our business. I will now pass the call over to Sean, who will walk us through our financial results in more detail. Sean? Thanks, Steve. Before I jump into the results, I wanted to quickly speak to the improvements we made to the presentation of our financial results this quarter. There's more detail available in the press release, MD and A and supplementary materials, including presentation of prior quarters. Though I would characterize the changes as straightforward and intuitive in terms of how most would look at our business. As we alluded to on our last call, the key change is that we're going to focus on a single metric for marketing, Adjusted EBITDA. We'll still report segment profit. However, we're not going to focus on the unrealized gains and losses as that's temporal and it's a realized cash margin that's reflected by adjusted EBITDA that the business is most focused on. For consistency, we're going to mirror that change in the infrastructure side, though the impact is much smaller there. The greatest impact will be that depreciation from our equity accounted investments will not be deducted, nor will adjusted EBITDA be impacted by other non cash gains or losses that can arise from time to time. That makes getting down to consolidated adjusted EBITDA far more straightforward as it will simply be infrastructure adjusted EBITDA Plus marketing adjusted EBITDA, less G and A. I would stress that there will be no change to DCF, As we'll still look to report a fully burdened cash flow for the period after maintenance capital, but before payment of dividends and investment of growth capital. With that, on to the results. As Steve mentioned, we had a solid start to the year from a financial perspective. Infrastructure adjusted EBITDA of $109,000,000 was very much in line with our $100,000,000 run rate outlook after normalizing for the reversal of an accrual made in a prior period and other smaller non recurring items. This was the Q1 in which we had a full contribution from the 3 tanks placed into service in the 4th quarter at the top of the hill, which was the largest driver of the sequential increase. Marketing adjusted EBITDA of $3,000,000 was slightly above our breakeven outlook. As Steve mentioned, the quarter materialized very much as we expected, where opportunities on the crude marketing side were limited, It's reflective of the fact that the opportunities that they were able to find were not sufficient to achieve previous profitability, While still fulfilling the fixed commitments that they have in place rather than because we made the wrong market calls or took on high risk positions that went sideways. In terms of our outlook for marketing, based on the current environment, including some gradual improvement that we are seeing, We would expect Q2 adjusted EBITDA to be approximately $10,000,000 to $15,000,000 This expectation would include some of the benefit of our previously meaningful shift in the environment relatively soon to be at the lower end or potentially even below our run rate range. As we've always said, we could certainly see a couple of events that get us comfortably back into that range quite quickly, and that's certainly what history has shown us. And that's fine, as we don't rely on marketing to deliver our strategy. Finishing up the discussion of the results, let me quickly work down to distributable cash flow. Interest costs were $13,000,000 relative to $15,000,000 in the Q1 of 2020. Refinancing our debt over the past 18 months has been a major focus. In total, reducing our run rate interest cost by nearly $25,000,000 per year and leaving Gibson with by far the lowest weightish average coupon within our Canadian midsize peer group At just over 3%, while at the same time having the 2nd longest weighted average center. Replacement capital of $2,000,000 in 2021 Was below the $6,000,000 in the Q1 of 2020. So we very much expect to be in the $25,000,000 to $30,000,000 range for the full year, especially given some work was deferred last year due to the onset of COVID. Taxes of $9,000,000 this quarter were slightly below the Q1 of 2020, in part due to lower marketing earnings. Also, lease payments were slightly lower in the current quarter relative to the Q1 of last year As we continue to actively reduce the number of leased railcars in our marketing segment and on a trailing 12 month basis, Rolling off a stronger quarter with the Q1 of 2020 having been $22,000,000 higher than the Q1 of 2021 Due to weaker contribution from marketing in the current quarter, our payout ratio increased modestly to 72%, but is still at the bottom end of our 70% 80% target range. Similarly, our debt to adjusted EBITDA was up slightly to 3.1 times, which remains at the bottom end of our 3x to 3.5x target. Speaking to our financial position, Despite the somewhat bullish sentiment in the markets lately, our approach will continue to be in favor of remaining conservative, including maintaining a fully funded position for all our capital and being proactive in having significant available committed liquidity. At the end of the quarter, we are $118,000,000 drawn on our $750,000,000 credit facility with $56,000,000 of cash on the balance sheet. We also have $115,000,000 of unutilized capacity on our $150,000,000 bilateral demand facilities, implying roughly $0.75 of $1,000,000,000 in available liquidity relative to a $200,000,000 capital program. In that sense, very much years of running room. In terms of being proactive, which you can see is always our bias, We again extended our credit facility to a full 5 year term, now maturing in April 2026. As Steve mentioned, We are particularly proud to have been the 1st company not only in our sector in Canada, but across all of North America to move our principal credit facility to sustainably linked terms. From a finance perspective, this will in no way limit our access to capital, So we very much like that our interest rate will move up or down with our performance on our ESG linked metrics. In summary, a solid quarter with a positive bias throughout the balance of the year. Results from the Infrastructure segment were dead on target and we look forward to that run rate increasing with a partial contribution for the DRU in the Q3. In the Marketing segment, The environment remains challenging, but is slowly improving. And perhaps most importantly, we very much believe that our business continues to offer a strong Total return proposition to investors with visibility to continued high quality investment opportunities in our Infrastructure segment, Resulting in attractive distributable cash flow per share growth, which supports a meaningful growing dividend, all while maintaining a very strong balance sheet and financial position. At this point, I will turn the call over to the operator to open it up for questions. Goodbye. Thank you. Ladies and gentlemen, we will now begin the question and answer session. First question comes from Jeremy Tonet of JPMorgan. Please go ahead. Hi, good morning. Good morning, Jeremy. It seems like Gibson has been quite active on the ESG front as you noted there. Just Wondering if you could update us, I guess, what the feedback you've gotten in the marketplace and has this kind of enhanced investor conversations or brought new Investor interest into the story? Hey, Sean, why don't you take that? Yes, absolutely. Thanks for that, Jeremy. Yes. No, I would say for sure. I mean, the ESG is certainly a journey for all of us. And Quite a bit of progress this last quarter with us announcing our ESG targets and then announcing on the back of that, our sustainability linked loan tied to those Target. So certainly, we have I think the feedback we've gotten is very positive on the ESG progress we've made. You see that through investor meetings, but also through 3rd party rating agencies. From an incremental capital perspective, we certainly have seen some momentum there. But again, I'd say it's early days in the ESG journey certainly. All in all, I'd say very positive. The momentum we have on the ESG side, I think we've demonstrated that we are A leader and we've got a commitment to being a leader and we are seeing that momentum in investor discussions. That's helpful. Thanks. I just want to pick up on the biofuel side of things, new announcement there. And just wondering if you could frame for us how Deep this opportunity set could be in your mind or how big is the addressable market that Gibson could serve? Jeremy, that specific opportunity is with Suncor at our Edmonton terminal. And so I think we made in that announcement when we did the terminal services agreement with Suncor, And it is a mechanism to spend up to over $300,000,000 on projects, Termalling projects for Suncor over the next couple of years. So specific to that, And then we're actually starting to really look across our assets and see how And if there are opportunities for that at our assets like Moose Jaw and other assets, Where can we get involved in the renewable market? But I would say we're in a very early stages, Jeremy, on that. Got it. Got it. That makes sense. Maybe just the last one for me as it comes to capital allocation, if you Just walk us through a bit more, I guess, how you think about hitting CapEx, if you still expect to kind of hit your target for the next several years. And I guess how would that compete for capital versus buybacks Or other uses that you might have such as increasing the dividend? Sean, why don't you take that? Yes. No, absolutely. I mean, We have been out, Jeremy. As you know, we've got a $200,000,000 capital target this year. With the sanction of the Suncor project this quarter, roughly 2 thirds or so of that is now fully sanctioned. We still remain confident in our ability to get up and around that 200 this year. I think in Steve's prepared remarks, either this call or last, We still remain confident in our ability even beyond this year and that sort of $150,000,000 to $200,000,000 per year As we sit here today, from a capital allocation perspective, really nothing has changed. To the extent that We continue to generate high quality projects that we've shown that we've an ability to do so. So think of those being very similar to the Suncor project, Long term contracts with investment grade counterparties at very attractive returns, that is absolutely going to be our priority from a capital allocation Perspective, to the extent that we have excess cash flow, that certainly would be the case if we're spending that $150,000,000 to $200,000,000 in future years, It really depends on the source of that excess cash flow. If the excess cash flow is predominantly from our infrastructure business, so think ratable cash flows over time, Given the contractual nature of the projects backstopping that, then we will continue to favor modest dividend growth over time. To the extent that it's predominantly from our marketing business, then we would buy share buybacks. Steve, anything you want to add on the future capital side or? I think we're going to talk we should get a couple of questions really about How our projects are going at potential growth at Edmonton Terminal, the DRU. Those talks continue at Edmonton. Those talks continue very consistent to our last call As far as progressing with counterparties to build out our footprint there at Edmonton, Very positive there. Feel comfortable that we will be able to build out our footprint over the next couple of years at Edmonton. On the DRU front, really exactly like our last call, progressing forward, the project itself is again on budget And on schedule really for sometime during July start up. And I would say as far as Progressing talks with customers. They continue to progress forward. Probably our number one customer opportunity there Is looking to see how it operates and how do these products sell and move into the market and how do they price. And so with that, we feel pretty comfortable that we will execute another DRU agreement whether or not it's this year or early next year. But we are feeling we feel positive in the DRU front, Jeremy. That's very helpful. I'll leave it there. Thank you. Thank you. The next question comes from Robert Catellier from CIBC Capital Markets. Please go ahead. Hi, good morning. Rob Catellier from CIBC. I just first of all, congratulations on the sustainability linked loan. I just wondered if you could Address the potential to solve power throughout renewables, seen a couple of your peers come out with That type of agreement and what role that might play in your strategy to reduce your scope to emissions? That is an option. We're actually looking for opportunities in which we can invest in ourselves, Potentially even in our U. S. Assets and around our Moose Jaw facility, we have a team set up Specifically for building out renewable power opportunities and potentially Scope 1 reduction opportunities. So we have a whole team set up now, Robert, to do that. I'd say we're still in the early phases, but we hope to really have some things going and improved moving forward by the end of the year And definitely have some opportunities that we're pretty happy about in the early stages. As far as Doing PPAs, that's certainly an option. But we're a midstream company. We'd like to invest our own capital. So just for clarification, Steve, are you talking about being a co investor or would you be a lead developer in terms of developing renewable projects? Yes, that's kind of in our Phase 2. Once we determine what project we want to develop, do we have the expertise or Should we bring in expertise? But right now we want to we're in the determination phase of exactly what projects we want to do, Robert, but the partnership opportunity is kind of as we start to really develop out that, we'll determine that. Okay. Another question for me is just on your experience with U. S. Marketing. You haven't been at it all But what's the relative contribution you're seeing on the marketing side from the U. S. Assets and How about picking up piece of it grow? I would say it's very temporal, very small right now. And our whole conventional pipeline business both in the States and in Canada is less than 5 We do have marketing around that to drive volumes through it, but that's really on the producer services side. It's not a high margin business. Yes. Well, I would not say our marketing in the U. S. Is going to ever really move the dial, Robert, the marketing there is really just to drive volumes across our assets. Yes. The answer I was holding for. Thanks. The next question comes from Ben Pham at BMO. Please go ahead. Hi, thanks. Good morning. My first question is on the quarter on infrastructure. You mentioned you hit your run rate on EBITDA. Can you comment turning on the volume sensitive Assets that you own are the volumes back to pre COVID or to your initial expectations? I would say our U. S. Assets, they're probably above or pre COVID in the U. S. I would say our Canadian conventional pipeline assets are still down probably 30%. And last quarter was really a record quarter for Hardisty as far as moving barrels through Hardisty. A lot of that is with the additional tankage that went in service in the Q4. So some of that bump and some of the beat really, the small beat in infrastructure Really came from record volumes at Hardisty. Okay, great. And I know a couple of questions on Energy transition and you had a paragraph on that in your packages as well. And my question, I'm curious, you mentioned you're looking at renewables early stage and You've done a good job of diversifying outside of tankage such as the valve fields and DRU. What are your thoughts now, like how broad do you think you can go here? I mean is there a carbon pipeline storage opportunity for you? Can you Move up the stream more in biofuels, like actually getting to the facility itself rather than supporting it. What are energy transition opportunities you're looking at right now? Well, we're going to try to always focus on in and around our assets and leverage our existing assets. But I would say just renewable opportunities would be probably number 1 potentially with solar Opportunities in Saskatchewan and around our Wink Terminal. The other opportunities that we may be looking at are potential geothermal opportunities In Saskatchewan around our Moose Jaw facility to help reduce Scope 1. And then we are not going to shy away from looking at opportunities around Moose Jaw and the energy transition opportunities, what energy transition opportunities could the Moose Jaw facility be involved in? Okay, that's great. Thank you. Thank you. The next question comes from Robert Kwan at RBC Capital Markets. Please go ahead. Thank you. Good morning. If I can come back to the commentary Steve gave on the DRU that you've got a leading party that really just want See it up and running, but it sounds like there's some other parties in behind it discussing things with you. Do you see the likelihood of contract signing being Case amongst those parties, would the 1st party take down all of the next phase? Or is there some tension here about Who's going to be able to come in first for you? I would say there's 2 leading parties, potentially 3 leading parties. They're looking for that Tire value chain there. The big U. S. Gulf Coast refiners, they're certainly interested in what this neat bitumen looks like. And so with that, getting the DRU up and running and getting that neat bitumen in for them to run it is going to be important to Finding out what the value is for those refineries. And so that really across Really the whole Gulf Coast and there's numerous the large refiners there are very interested in what this neat bitumen will look like when they try to when they bring it into their facilities And run it versus deal bit because you take out that 30% to 40% condensate and it really has a lot more value to them And how they blend it into the refinery runs. So do you Are you comfortable or just the size that they're looking at, do you think you can accommodate all these types of customers at the same time? Well, yes, I mean, it was built to expand up to 250,000 barrels a day. And the only reason we limit to 250,000 barrels a That's what the 3 unit trains can move out in one day is about $250,000 of neat feed Of gross fee. So we can move out a little over 200,000 barrels a day of knee bitumen. So that kind of limits us to that 250,000 barrels a day kind of threshold. We can obviously expand the DRU And with further expansions of the unit train facility. Probably when I think of the DRU, we are now currently looking at potentially what does it look like to build 100,000 barrel DRU versus a 50 because we think there's significant savings on the capital front if we can build a 100,000 barrel a day unit versus a 50. Of course, you have to have the customer to do that. Right. Okay. If I can just turn to the marketing guidance and Specifically, Moose Jaw, how is any recovery there factoring into your thoughts on how the year is shaping up and specifically The economically sensitive parts of the business, the cyclical products as well as roofing flux just get to what we're seeing on housing starts? Well, it was certainly good to not saying given a forecast of atornear0. So we're pretty excited about that. So we think we've kind of turned the corner now on that $10,000,000 to $15,000,000 I would say Roofing Flux is red hot right now because it's Part of the building industry across North America. And so Roofing Flux margins are really as high as we've seen. Generally, Roofing Flux doesn't trade as a premium as road asphalt. And the road asphalt season has just really kind of started up. I know in the States, the infrastructure project, the infrastructure spending that Biden has moved forward with, some of that Does include kind of repaving federal highways and that would definitely be a boost to the asphalt business And asphalt margins across North America. And similarly, infrastructure If Canada moves forward with major infrastructure spending, we could see higher asphalt margins than we've seen in the past. I would say one of the things we are starting to see is improvement in our drilling fluids margins. So the Q3 right now definitely appears to be back in our normal range. When we look at the Q3, we feel that the Q3 will be back to kind of that normal range that we've seen in the past. Great. If I can just finish the question on ESG, clearly it's an emphasis for you. You've addressed the financial side of the new credit facility And highlighting your targets and work on the S and the G front, but at a minimum, at least optics wise, The assets are pretty heavily geared to crude oil related infrastructure. Economically, you've got the visible runway for oil sands demand that Gives you that base, but just as part of the transition, do you see it being more gradual and capitalizing on your footprint as it comes to you like Biofuels, lending infrastructure, or do you see opportunities to more quickly transition your footprints? And if so, what types of new platforms Are you seeing as most appropriate for the company? I would say we've always been pretty conservative in our approach. So I think it's Building in and around our assets, how do we fit, right? When I think of carbon capture, I mean, we're not a compression business. So that's not a expertise that we have. But I would say looking at other opportunities in and around our assets to reduce our scope to definitely some of the projects that we're looking at in the States actually have good rates of return, which is what we're going to invest in, right? We're not going to just invest Money with no rate of return. We're going to want it to be To at least hit our cost of capital on or earn better than our cost of capital on these projects as far as Reduction of Scope 1 and Scope 2. As far as renewables, yes, We're in the very early stages there. We do like we are going to look at what we can do around our Moose Jaw asset The next question comes from Linda Ezergailis at TD Securities. Please go ahead. Thank you. I don't want to belabor the point too much, but further to Robert's question Around any ways to kind of accelerate. I'm wondering if tuck in acquisitions might be an opportunity to both Bring potential skills in house as it relates to your renewable and ESG and energy transition investments in a very in a slightly accelerated way to also migrate from Development to actual execution in the later stages, what are the thoughts around the possibilities around that? Again, we're in the very early stages developing the strategy, but that would definitely be part One of the segments of the strategy that we would review as far as if opportunities come up that we feel Fit the strategy, we would definitely review them, Linda. Yes, we've always been a little leery of M and A, but When you can do something that actually kind of step changes you as far as your organizational capability, we can see a strategy around that. Thank you. And with all the change going on in the industry, I'm just wondering How we might think of any sort of structural changes potentially in the industry that might Shift the run rate of marketing contributions over time, either up or down, As it relates to the, I guess, growing supply of biofuels over time versus maybe even narrowing some locational differentials Years ago when we laid out that 60 to 80 and then we were performing at much higher rates when the markets got dislocated. We always said Linda that really these were temporal and think of 60 to 80 as our long term run rate. And I think we're still in that boat. Now obviously there are things that do impact it. As far as feedstock pricing to Moose Jaw, the WCS to WTI has an impact on that. So if that margin widens or narrows, That increases or decreases the feedstock price to Moose Jaw. That's probably one of the bigger levers. And then obviously structural changes, that's probably the one Major long term structural change that impacts our business. And again that floats anywhere from 8 To $24 depending on the time of the year and what's going on with the reliability of the pipeline Leaving the basin. Hey, Steve. Just to clarify, I think you had said 60 to 80 there. Yes. So just want to clear So just want to clear So just want to clear Yes. Sorry, I just wanted to make sure we clarified that. Thank you. And maybe another just follow-up question. I'm wondering if We're hearing that there's supply chain disruptions, some bigger than others, and that there's inflationary pressures coming. I'm wondering How you're thinking about or whether you're starting to see that in your capital budgets or operating budgets and how that might be mitigated by your cost savings. There's some few puts and takes, including kind of how your cost structure might shift a little bit as you reopen into a new normal eventually this year. That's a great question, Linda. Steel is probably the main thing that would impact that steel price. I don't know that labor And Canada is on a major ramp up, but I think steel prices would probably be the biggest issue. And I don't know that my SVP of Engineering and Ops has really Pointed that out as a major concern yet, but that could potentially increase some of our capital, but I wouldn't say substantively. I would be potentially a 5% or a 10% increase in our capital. But That's not a major driver and it's something that all our competitors would have too. So it would be reflected in the market price of our offer. Thank you. That's very helpful. I'll jump back in a few. The next question comes from Patrick Kenny at National Bank Financial. Please go ahead. Yes. Good morning, guys. Just on the DRU and I guess specific to CP potentially extending the reach of their network, curious to hear your thoughts as Whether or not they are successful in their bid for Kansas City Southern, whether or not that might impact the customer's willingness to Commit to the next DRU phase, just in that given how tight differentials are, saving a buck or 2 on Transportation to the Gulf Coast could actually make the difference. It's hard for me to weigh in on that. But other than that I know that Obviously CP and Kansas City Southern were major partners in getting the DRU across the finish line. And Them working together was instrumental to the ConocoPhillips transaction. And that's probably what kind of drove that thinking. I don't know. You'd have to talk to the CEOs of those 2 companies. But Definitely, you always see synergies when one company can operate this. And I know that this is a high profile project really for both of those rail companies into the future. We'll see, right? I know Kansas City Southern is the delivery point that we used that ConocoPhillips used to deliver down into Port Arthur. So I don't know. This is interesting to watch. Absolutely. Thanks for that. And then Just maybe to circle back on the conversation around looking at capital allocation more through an ESG lens or at least in parallel to financial metrics, Just given you're still very much in the early innings with respect to building out your U. S. Footprint, but at the same time biofuels and Your renewables opportunities are still very much in the early stages. So just curious if the U. S. Strategy has been bumped down the priority list From a capital allocation standpoint, or do you see the U. S. Opportunities competing head on with some of these emerging ESG opportunities north of the border? I don't think it's a capital allocation issue. I think it's just a capital opportunity issue in the U. S. Versus some of the opportunities that we have in Canada. It's not really we don't have a limited amount of capital. We just really have a limited amount of opportunities right now in the U. S. I don't know. Sean, would you have any extra feedback on that? No, I think that's absolutely right, Steve. I mean, as you would have seen, Pat, I mean, certainly the ability to fund 300 or more capital as the business continues to grow. So as Steve notes, it's not Necessarily one or the other. It's just remaining disciplined as we allocate capital to ensure that it remains on strategy and That it achieves the investment characteristics that we typically have in around returns, counterparties and contract length. Okay. That's great. And maybe last cleanup question here, guys. I think you touched on it, but just on the $10,000,000 to $15,000,000 guidance for Q2 marketing, It looks like forward differentials are still very much in the $11 to $12 range, breakup obviously here in Q2. So pipeline egress Should remain more than sufficient. So the $10,000,000 pickup over Q1 is mainly asphalt sales at Moose Jaw coming into the P and L or Are you seeing other factors driving the more normalized outlook? I would say the majority of it is really kind of the improvement in the margins, Which is the sales side of the margins or product demand for Moose Chong, which is really kind of all the products, Pat. But asphalt, it's going to start to pick up. We're going to start to move some asphalt out of inventory. And then, roof and lots margins are strong. So we have demand our demand for those products is definitely Picking up in the Q2 and we're moving some of that out of inventory. But you're right, I mean the feedstock is still going to be relatively expensive at that $12 margin. Thank you. The next question comes from Andrew Kuske at Credit Suisse. Please go ahead. Thanks. Good morning. I guess looking back last year, I mean, obviously, it's a very challenging year, but you managed to build your core infrastructure business In a pretty resilient fashion. And so where you stand now and Steve, I think you mentioned volumes at Hardisty sort of down 30% from peak. Are you in an interesting situation where you've got a lot of interest on the DRU expansion? You've got volumes that Should return to normal and potentially grow from there at Hardisty. So do you think about building preemptively at Hardisty To get ahead of competition and to better position yourselves given the attractive build multiples that you have? No. I mean, we've never did the Field of Dreams there in Hardisty. So we really want to have a customer if we're going to build a tank. We did build a tank for our marketing organization Because they our marketing organization felt they needed to tank to really maximize their opportunities. We subsequently after we placed in service did find a really a core infrastructure or core producer in Canada wanted that tank And so we did move it over to that core producer. We believe that will become a long term agreement. I would say Maybe we felt it by 25%. We lost maybe we lost 25% of the volume at Hardisty for 1 month And then it bounced right back. And most of the quarter, we moved 1,100,000 barrels a day across the facility, Which is almost 100,000 barrels a day higher than any really previous quarter. So we're starting to see a lot of volume move And that's with limited rail movement out on HERC. So seeing a lot of activity across our terminal, but I do not see us Building spec tanks at Hardisty, we definitely have the ability to be extremely capital efficient in building another 1,500,000 barrels of tank which is building out the rest of our Top of the Hill project. And so as I've explained many times, We always say that 5 to 7 times multiple on building these tankage. But when we're building out the final phases of these platforms, that we can be Very competitive on a per barrel basis. So we feel that if tankage needs to be built, It would be difficult really for any of the other operators to build that tankage as cost effective as we can. That's very helpful and a great clarification. And then you mentioned about renewable potential At Moose Jaw, but do you see any kind of renewable potential in particular solar at Hardisty and perhaps at the infield at Herc? You always want to put it in the very best sun, right? So, Our best spot as far as where we own property in Canada, our best spot is, our best spot is And kind of the plains of Saskatchewan there. But to put it in perspective, It's in the top 90 something percent of Canada, right, as far as solar goes. But if you compare that to Wink, it's only produces It's only 75% of the solar power that's available at Wink. So we'll look at we're definitely going to look at Solar opportunities, but potentially there at Moose Jaw there might be a geothermal opportunity that may be better than a solar opportunity for us. Yes. That's very helpful. Thank you. Thank you. There are no further questions. I would now like to the call back to Mark. Thank you for joining us for our 2021 Q1 conference call. Again, I'd like to note that we have made certain information available on our website, gibsonenergy.com. If you have any further questions, please do reach out to us at investor. Relationsgibsonenergy.com. Lastly, I'd like to also remind everyone that we will be holding our virtual Annual General Meeting later today at 10 am Mountain Time. Details are also available on our website and participants are encouraged to register for the live audio broadcast at least 10 minutes prior to the presentation start time. Hope you're able to join us. So thanks for joining our call and thank you for your continued support of Gibson Energy. Have a great day. Bye. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and we ask that you please disconnect your lines.