Earnings Call: Q3 2020

Nov 3, 2020

Good morning, ladies and gentlemen. Welcome to the Gibson Energy's Third Quarter 2020 Conference Call. I would now like to turn the meeting over to Mr. Mark Hitzchess, Vice President, Strategy, Planning and Investor Relations. Mr. Hitzchess, please go ahead. Thank you, Josh. Good morning, and thank you for joining us on this conference call discussing our Q3 2020 operational and financial results. On this 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, and thank you for joining us today. It's been nearly 9 months since the outbreak of COVID in North America. In this tough environment, we've continued to focus our strategy around our core terminals on high quality cash flows and maintaining a strong balance sheet. The strategy has continued to position us well in this environment. The performance of our Infrastructure segment has been particularly resilient. 3rd quarter segment profit of $93,000,000 was a $3,000,000 increase over the Q2 of this year. With segment profit over the 1st 9 months of $28,000,000 we expect to be on the high end of our range for infrastructure. That's a target we set pre COVID. In terms of what drives this resilience, there are several factors to point out. 1st, most of our tankage is operational storage, and the tankage is a critical piece of infrastructure to ensure the reliable offtake of crude oil and allow our upstream customers to maximize the value of their production. Oil sands projects produced for decades. As a result, we have a lot of comfort around the need of these assets. And a strong line of sight of why our terminal assets keep getting recontracted. Our services that we provide our customers the ability to maximize their netbacks of their crude oil production. That is why we've been so successful in building 7,500,000 barrels of new tankage at Hardisty over the last 4 years. Our focus on the oil sands leads to 60% of our total company cash flow being take or pay and 80% being stable fee based. That's a key reason why our earnings have been so stable this year. Our customers' teams tend to think very long term, enabling 10, 15 and even 20 year take or pay commitments. The last aspect of this resilience I wanted to cover is our ability to grow our infrastructure cash flows. This quarter's Infrastructure segment profit grew 14% over Q3 of last year. In the Q4 of this year, we expect to continue to increase our Infrastructure segment profit as additional assets are placed in service. The largest driver will be the 1,500,000 barrels of new tankage we placed in service at Hardisty before the end of the year. Also, in the U. S, we've seen an increase in throughput volumes and revenue each month despite the slowdown in drilling. We recently placed 250,000 barrel tanks in service at the Wink terminal, which is now operational. We continue to advance connections to new producers and third party gathering systems and the major egress pipelines out of Wink to the Gulf Coast. The DRU continues to progress very nicely, and we are on budget and on schedule for a mid-twenty 21 start up. We also expect to add to that growth. And we will come out with our formal budget for 2021 in December, we expect that infrastructure growth capital in 2021 to be at least $200,000,000 We continue to expect to sanction 2 to 4 tanks per year, but likely on the low end. The tankage for this year has slipped into 2021 due to pauses in negotiations during COVID. If we see continued progress in TMX, we expect our customers will need to secure their corresponding tankage at Edmonton sometime later next year. We have room for about 2,000,000 barrels at our Edmonton terminal, and we feel we're very well positioned to compete to build that tankage. At Hardisty, we continue to be in discussions for additional phases of the DRU. In the U. S, we'll be in that $25,000,000 to $50,000,000 capital spend range. To the extent we sanction third party tanks, we'll be on the upper end of that range. Returning to our strategy. Our conservative approach of seeking to capture opportunities through our marketing organization, but not depending on it to maintain our financial position, has served us very well. In the first half of the year, the significant volatility, particularly the opportunities created by crude near 0 and a steep contango, led to outperformance in the Marketing segment. Since then, the environment has been very challenging. Volatility has been limited. And the crude and crude has been range bound around US40 dollars since June. Differentials have tightened, reducing margins at Moose Jaw, which has also decreased the demand for certain products, namely our drilling fluids. Combined with the compression from low absolute prices, narrow differentials have also limited location and storage based opportunities. The futures curve is flat, preventing time based positions. In that context, I believe that $23,000,000 in segment profit from our marketing segment in a difficult environment is a very strong result. We have a very talented marketing organization. Whether the market's been up or down, they've done a great job, but a sideways market is tough. And I have every confidence that if there's opportunities in the market, they will capitalize on it. But due to the tough marketing conditions, I believe the marketing segment could be close to breakeven in the Q4. That would put us in our $80,000,000 to $120,000,000 range for the full year. Shifting gears to another lens through which we manage our business. We have continued to advance our sustainability and ESG initiatives on several fronts. In August, we made our first submission to CDP. We believe our carbon footprint is best in class in the Canadian midstream space on both an emissions per dollar revenue basis and barrel throughput basis. Managing climate change risk is very important to us, and we continue to explore additional opportunities to further reduce our impact and improve our resiliency as a company. Also in August, our Board established a stand alone Sustainability in ESG Committee. It is chaired by Judy Cott, an expert on ESG and responsible investment. I would tell you that we have very much benefited from our expertise on our ESG journey thus far. We're also pleased to have Peggy Montana join the Board. She brings significant experience, particularly in safety and operations side of the business from her time at 1 of the super majors. With her addition, 3 of our 9 directors are female. At the start of October, Gibson made a real commitment to a cause I personally feel very strong about. With the donation of $1,000,000 in a 5 year partnership with Trellis, We are very much making a difference in the mental health of youth in our community. This is the largest financial donation in Gibson's history. And Gibson employees have also committed to dedicating a significant number of volunteer hours. It's certainly a challenging environment for our company right now. But this is exactly the time that communities need our support the most, and I'm very pleased we could make this happen. In summary, we're continuing to hear and execute on our strategy. Our business remains in a strong position with a bright future. The contribution from marketing in the Q4 is expected to be lower than our last few quarters, yet we remain fully funded with both our payout and leverage below target levels. Our infrastructure business is very resilient and our existing cash flows providing a very strong base for decades to come. We continue to expect to grow that cash flow. We'll deploy nearly $300,000,000 this year and expect to sink at least $200,000,000 next year. And our balance sheet is very strong, and we will remain conservative in our approach to our business. I will now pass it over to Sean, who will walk us through our Q3 results in more detail. Sean? Thanks, Steve. As Steve mentioned, our infrastructure business remained strong in the 3rd quarter. With respect to the different components driving the $93,000,000 in infrastructure segment profit, I would note, our terminals were up slightly relative to the Q2. This was from a roughly equal mix of higher terminalling related revenues and operating costs being slightly lower. Recall, roughly 85% of Infrastructure segment profit would be from our terminals at Hardisty and Edmonton. Contribution from our Canadian small terminals and pipelines was in line with the 2nd quarter and about 40% below pre COVID levels. In the U. S, volumes continue to increase with September throughput on the PiYoT system having increased by over 60% since January of this year. Moose Jaw contribution was up slightly. As we talked about last quarter, the turnaround was completed below expected costs, so the increase was fairly small this quarter. Marketing segment profit of $23,000,000 was very much within our target range. And as Steve mentioned, a good result in a challenging environment. Refined Products had a fairly strong quarter, supported by attractive road asphalt, roofing flux and tops margins with volumes comparable to last year. On the crude marketing side, opportunities were very limited with contribution mostly driven by time based positions brought into the quarter. In terms of our outlook for the Q4, as Steve said, absent a change in the environment, it will be a fairly challenging quarter for marketing as this sideways market doesn't present a lot of opportunities for the crude marketing business. In Refined Products, with the paving season largely complete, limited drilling expected for the balance of the year and weakening margins on our roofing flux sales due to narrowing differentials putting downward pressure on our crude index based term contracts, the Q4 will almost certainly be the weakest of the year. Given the crude marketing business specifically is very much an opportunity driven business, there certainly could be upside to our breakeven outlook for the segment. But as Steve said, we're not going to in any way change our risk tolerance to achieve that upside. For perspective, marketing segment profit through the 1st 9 months of the year has been $103,000,000 So at worst, we are still going to be well within the long term run rate for the year with the potential for that to improve if the environment changes or some opportunities arrive. In terms of developing our financial strategy and the long term expectations we messaged to the market and recognizing we would find ourselves in this situation at some point, we are very deliberate in designing a framework that anticipated eventual volatility in the variable parts of our business. For that reason, in addition to our overall leverage target being conservative relative to peers, despite the cash flows from our infrastructure business being amongst the highest quality, our financial governing principles include measures for maintaining infrastructure only leverage at or below 4 times as well as not paying out more than 100% of our infrastructure only cash flows. As a result, by design, even with an expected moderation of contribution from our marketing business in the Q4, we remain in a very strong financial position, including being fully funded for all our anticipated capital. Returning to the 3rd quarter results, there is definitely some noise from unrealized gains and losses Q2. Recall that last quarter we had $20,000,000 in unrealized losses that we added back to segment profit as to increase adjusted EBITDA. Recall also that at the time we very much looked through that increase in our discussion of the results as we knew that it was temporal and it would even out in time. This quarter, we had an $11,000,000 unrealized gain. G and A and the other items between segment profit and adjusted EBITDA were nearly identical in the last two quarters. So the difference between this quarter and the second quarter is about 2 5ths the change in marketing segment profit and about 3 5th the impact of financial instruments with infrastructure up slightly. Quickly working down to distributable cash flow on a sequential basis. Replacement capital of $3,000,000 in the 3rd quarter was $4,000,000 lower than in the 2nd quarter. With lower taxable income this quarter, current tax expense decreased by $10,000,000 to only $2,000,000 and interest and lease payments were also slightly lower than in the 2nd quarter. This resulted in distributable cash flow this quarter being $7,000,000 lower than the Q3 of last year, resulting in our payout ratio remaining relatively flat at 62%, still well below our 70% to 80% target range. Similarly, our debt to EBITDA remained relatively flat at 2.7 times, which remains below our 3 to 3.5 times target. Our bias continues to be towards maintaining a conservative financial position, including remaining fully funded for all our capital and maintaining access to significant liquidity. At the end of the quarter, we are only $95,000,000 drawn on our $750,000,000 credit facility with about $45,000,000 of cash in the balance sheet, implying we have access to a net $700,000,000,000 through our credit facility as well as to over $100,000,000 in unutilized capacity on our $150,000,000 bilateral demand facilities. Given our outlook for capital in 2020 of about $300,000,000 we will carry out some funding capacity into 2021, meaning we have clear line of sight to funding the 2021 capital program with cushion on top of that. During the quarter, we also took further steps to continue to move from a high yield to an investment grade capital structure. In July, we completed the refinancing of our 5.25 percent 2024 notes with 2 tranches bearing an average coupon of 2.65 percent, cutting our annual interest costs on that $600,000,000 almost in half, while also extending the average maturity by 2 years. Through this refinancing, as well as the one completed in September of last year, the weighted average coupon on our notes would be by far the lowest within our Canadian midsize peer group at just over 3%, while at the same time having the 2nd longest weighted average tenor. In total, these steps have reduced our interest cost by over $20,000,000 per year, meaningfully improving our conversion of EBITDA into distributable cash flow. At the end of August, we put in place an NCIB. I think that this very much speaks to the strength of our financial position, where not only is our capital fully funded without the need for a DRIP or discrete equity issuance, but we are also one of the very few midstream companies in North America in a credible position to return capital to shareholders via buyback over the next year. That said, we expect our use of the buyback to be fairly modest, if at all, throughout the balance of the year. It is our intention to provide additional visibility on how we will utilize our NCIB as part of our 2021 capital outlook in December. Though, given our conservative bias and stated policy of buybacks being a mechanism to return excess cash for marketing outperformance to shareholders, I suspect that our willingness to begin a meaningful share buyback will be somewhat limited until the outlook for marketing improves. In summary, the business had another good quarter. Our infrastructure segment had a very strong quarter and marketing was within our long term run rate expectation. We don't count on marketing outperformance, hence we very much remain on plan and in a position to continue to execute our strategy. We remain well positioned with a resilient business. We have market leading quality of cash flows, a strong balance sheet and are more than fully funded. At this point, I will turn the call over to the operator to open it up for questions. Thank you. Our first question comes from Jeremy Tonet with JPMorgan. You may proceed with your question. Hi, good morning. Good morning, Jeremy. Just wanted to start off. There's been some M and A in the industry so far, notably Cenovus Husky, and I think there's been some debate in the marketplace and how this could impact Gibson. And so just wondering if you might be able to comment on that a bit? As far as Cenovus and Husky, when we look at our terminal, and I think I talked about it in my remarks, we think that we provide the greatest synergies and netbacks to any producer at Hardisty. So we're confident in any business that we have with those two companies will remain and we'll continue to improve their netbacks and optimize their crude streams into the future. Got it. Could you, I guess, just refresh us on your weighted average contract duration for Hardisty as it stands right now? Yes. I don't have that number. Do you have that number? Yes. I mean, Jeremy, it will be just under 10 years. We don't really distinguish between Hardisty and Edmonton in general. But if you think about it, surface to the 9 ish years would be the weighted average across both terminals, reflective of the tankage that we've put on even more recently and just the absolute longer duration of the contract that we're able to achieve. Got it. So it seems like nothing could change for a long time anyways regardless. So that's helpful. Thanks. And then separately kind of pivoting towards capital allocation here, you talked about it in the prepared remarks, but hoping for a bit more here and how you evaluate dividend increases versus buybacks versus increased CapEx in 2021, seeing that you have this financial flexibility here? And really, how does leverage fit in? And do you worry that carrying such low leverage could lead Gibson to being a takeout target at kind of depressed equity levels? Yes. Why don't I take that? I mean our capital allocation philosophy has been very consistent. We first introduced it at our January of 2018 Investor Day. But first and foremost, to the extent that we have capital growth opportunities that are very much in line with what we typically invest, so think 5 to 7 build multiples, long term contracts with investment grade capital counterparties. That's going to be absolutely our capital allocation priority. If beyond that we have excess cash flow and that by definition for us is outside of our target leverage ranges, then really the capital allocation philosophy is dependent on where that excess cash flow is coming from. We talked about it a bit in our prepared remarks, but to the extent that that excess cash flow is coming from our Infrastructure segment, then we would bias dividend increases over time. We had our 1st dividend increase in 2016 last year. And so to the extent that excess cash flow would continue to come from that, we would bias annual dividend increases. Of course, that is very much a Board decision and one that we only discuss annually on the back of our year end results in February. To the extent that that excess cash flow comes from our marketing business, then we would buy share buybacks. So really nothing has changed from a capital allocation philosophy. You also asked about leverage, perhaps I'll start on that answer and then Steve can finish it off. But we remain firmly committed to our leverage targets that we put out. Again, these have not changed since our January 2018 Investor Day. So as a reminder for everybody listening, that's 3 times to 3.5 times on a consolidated basis, 4 times or less on an infrastructure only basis. As we sit here right now, you're absolutely right, 2.7 times well below the consolidated target. The question about whether or not lower leverage makes us a target, I mean, at the end of the day, we're here for our ultimate shareholders. So we think having this conservative leverage profile is absolutely the right thing for the company and for all of our stakeholders. And so something like that is not something that we take into real consideration as we think about what the appropriate targets might be. I don't know, Steve, do you want to comment on the second half of that just in around potential for takeout or whether or not we're worried about our vulnerability? At the end of the day, probably the most one of the most precious assets that we have here at Gibson is our balance sheet. And that strong balance sheet served us well. And we're going to continue to have our conservative view when it comes to balance sheet. Got it. That makes sense. I'll stop there. Thank you. Thanks, Sherry. Thank you. Our next question comes from Patrick Kenny with National Bank Financial. You may proceed with your question. Yes, good morning. I'll start with marketing as well and I appreciate the transparency into Q4, but perhaps looking into 2021, based on what looks to be similar, modest contango environments, pipeline egress filling up and still relatively tight differentials. Would you say you have a bias to the lower end of that $80,000,000 to $120,000,000 annual guidance? Or are you seeing other factors, again, as we sit here today, supporting confidence and still being able to achieve or exceed the midpoint of the guidance range? The $80,000,000 to $120,000,000 we put that out there for a while now. And it's difficult to say where we'll land because next year is that full year. This year, we're going to be on the top half of that $80,000,000 to $120,000,000 at the end of the year. But next year, it's hard to say, right? I mean, all I know is that our we'll be poised to capture opportunities as they develop and excited about the recovery of crude oil for refined products sometime next year. And as that recovery starts, our margins across Moose Jaw will gain steam and we think the differentials between WTI and WCS will become more normalized across the year, which continues to drive revenue at our Moose Jaw. Sean, why don't you answer that last. Yes. There's another piece on the adjusted EBITDA to the Yes. Well, I mean, again, I mean, what Steve is talking about there is very much on an as reported basis. And I guess just to summarize that, I'd say we very much if somebody asked me where should we be next year, I'd say 80 to 120, absolutely. We've got confidence in that like we do always. This is a business where we've got an extremely talented team that's able to find opportunities. So I certainly wouldn't point to bias to being at the lower end as we sit here right now, Pat. The second part and I think maybe just to address it, Steve has talked about being at the higher end and we did have some noise this quarter in around the unrealized gains or losses that we see there, so just to address that. I mean, I said in my prepared remarks, but this is something we very much we'd expect to even out over the course of the year and we've largely seen it. So though we had an unrealized gain of $11,000,000 this quarter, which we saw in some notes, people were calling it a realized marketing segment profit. We would highlight that we had a $20,000,000 loss. We looked through last quarter as well. So for us, this is absolutely normal course of the business and how we run it and would expect that it normalizes over the year, which it largely has as we sit here today. Okay, thanks. That's great color. And then just zoning in on the export pipelines, again, filling up out of Hardisty. Wondering if there is a Biden victory tonight and assuming he does follow through and take back the presidential permit for KXL, if you would expect an increase in the level of discussions that you're having around a second phase for the DRU, say, over the next few months? Or if third party demand isn't there right away, I mean, would you guys consider building a second phase for your own proprietary use and increase your opportunities around locational arbitrage on the marketing side? Yes, Pat. I would say if there's a Biden victory, he's made some pretty strong statements about KXL and the KXL expansion. And I would say that is more positive towards the DRU. Overall, we would love to see the KXL move forward because we see long term over the next 10 years that we're going to build a lot of tanks to help support KXL into the future. And in the short term, you're probably correct, that's going to drive more interest in the DRU, especially the U. S. Refiners. As those crack spreads start to return, their demand for that Canadian crude continues to get stronger as the Venezuelan and the Mayan Mexico crude continue to decline. So a lot of the interest that we had pre COVID was driven by those big U. S. Refiners that wanted to meet bitumen to maximize the refinery runs. And we think as that normalizes back on refined products demand in the U. S, we're going to see that interest rematerialize next year. And just to confirm, not much of an appetite to build the 2nd phase for your own marketing group? No. Yes, I don't think we haven't even considered doing anything on spec like that. Got it. Okay. And just last one for me guys, if I could. On the ESG front, you made quite a bit of progress here in just a few months. Can you maybe just walk us through some of your top priorities between now and say the end of next year, either on the disclosure front, setting new environmental targets? And then on the back of that, maybe just given the tough crowd out there for oil related investments in general, just how are you guys thinking about shifting that narrative around your asset base being tied to the oil sands and instead being viewed as more of an ESG accretive holding for investors? A great question. First, just on the disclosure front, we did submit our first CDP disclosure this year, and we should be getting our ratings back probably early next year. And then so our main admitter is Moose Jaw. So we continue to look for opportunities to reduce our carbon footprint at Moose Jaw. And we've come up with a couple of projects that have that 5 that have that better than 5 times payout and reduce our hydrocarbon footprint there. So we continue to look for opportunities to reduce that carbon footprint. But then if you look at us overall to other midstreamers, we don't run the compression and we don't have the big large pipe mainline pump. So our Phase 1 and Phase 2 is extremely low on a per revenue basis and on a per barrel throughput basis. And I think it's very difficult for really anyone in North America to compete with us on a midstream basis in our sector. So just because of the type of business that we have. As far as looking at other opportunities, we will look for other opportunities to spend into that sector. And that's part of our as we develop our strategy, that's one of the items in strategy that we will take a look at that. But we've made no decision on how to do that. Okay, that's great. Thanks Steve. Thanks Sean. I'll leave it there. Thanks Scott. Thank you. Our next question comes from Robert Kwan with RBC Capital Markets. You may proceed with your question. Good morning. Just wondering whether it is comments as it relates to discussions in new infrastructure or your outlook marketing to 2021. Is there anything you see in terms of the lifting of the curtailments that could be helpful to you? Well, I mean, the lifting of the curtailments, I think, was about 75,000 barrels a day. Also, we've had significant outage in the oil sands. And as those come online, along with the lifting of the production restrictions, We see that that's where I was saying WCS to WTI tightening across the year as that occurs. I mean, widening across the year as that occurs, which will help really our Moose Jaw facility in driving that margin from the refined product sales, which is based really on a U. S. Kind of Gulf Coast refined products pricing and WCS or heavy crude pricing coming from Canada. So that's one of the reasons we're more positive in that staying within that $80,000,000 to $120,000,000 next year, Robert. Okay. If I can maybe just turn to capital allocation and you've talked about marketing outperformance being tied to the or to sorry, the NCIB. Just wondering though, like if you see Western Canadian infrastructure investments coming in below your expectations, you also put out $25,000,000 to $50,000,000 in the U. S. Infrastructure. What's the bias then? Would it be to put more money above that $50,000,000 into the U. S? Or would you then look to the NCIB for excess cash flow? Thanks, Robert. Maybe I'll start that and Steve can backfill as necessary. I mean, we are not going to chase capital based on our financial position. So the visibility we have to the U. S. Right now is the high quality projects that are in front of us. We're going to remain very, very disciplined as we look to deploy that capital. And so we'll not chase it because we view ourselves as having excess capital. I mean, if additional projects surface as I said earlier on my capital allocation answer, if additional projects surface that have the criteria that we typically are able to sanction, then absolutely we deploy it there. But we're not going to look to go above that just because we have that excess capital. And that's what we really like about the NCIB. It does allow us to remain disciplined to the extent that we have excess capital above the growth capital projects that we see with the characteristics that we typically invest in and we'll either allocate that to the NCIB and or dividend increase depending on the source. But we're certainly going to remain disciplined as we think about allocating that growth capital and are not going to look to chase it. Yes. And then as you look at kind of that capital outlook next year, we do have the $25,000,000 to $50,000,000 in the state, but we have the DRU spend. And then we have projects at Edmonton that are not tankage that are pretty significant size that we continue to progress. And then we do believe that we will sanction some tankage next year and in that we'll have some capital spend from that tankage with the majority of that tankage spend probably being really 2022. Understood. If I can just finish then with marketing and trying to deconstruct Q3, but as well just how that feeds into your Q4 guidance. So on the second quarter call though, you, I think, mentioned that you expected EBITDA to be fairly close to segment profit. And then a couple of things that can move it around would have been niche commodity price movements, which didn't look like they occurred during the quarter or if you just deferred crystallizing positions. So you did end up with a very significant mark unrealized gain. So can you just kind of square up what you said in Q2, how that fed into Q3? And why kind of Q4 then we can see that spillover? Yes. So Robert, when we exited Q2, we had pretty significant inventory that was hedged. And a lot of those hedges were hedged into the Q4. And so we just brought those hedges forward and into the Q3. And that's where that's the exact change of our expectation as we just pulled those edges forward. We did say don't look at the adjusted EBITDA of that $19,600,000 which we knew that we had these hedges out there. Some of them actually extended into 2021 and we pulled all of those forward into this quarter. I think too Robert, just to quote about, we liquidated all the position. Our expectation is because we pulled those forward that for Q4 segment profit and adjusted EBITDA will actually be very, very close. Again, as Steve said, because we pulled those forward from Q4 into this quarter. So you're absolutely correct in your question, and Steve clarified why. Okay. Did you anticipate pulling those forward when you had the call in Q2? No, we it was a strategic decision we made during the quarter to do that. So on the Q2 call, you're absolutely right. We had indicated that we felt like segment profit and adjusted EBITDA would be very similar, which would imply that those would have stayed through to Q4 even into 2021 as Steve noted. And as we move through the quarter for various reasons, we elected to move those forward into this quarter. So that was not our expectation at the time and it is a variance to what our messaging was last quarter. Okay. If you pulled those realized gains forward and crystallized into Q3, doesn't that mean that the underlying in Q3 was even worse then? No. Segment profit of $23,000,000 is really right where we expected. And the unrealized gain, if you look across the year, just like Sean said, the unrealized gains and losses versus segment profit is virtually plus or minus $2,000,000 or $2,000,000 or $3,000,000 And I think it's actually plus and that's because we carried in some gains from last year. That's great. Thank you. Thanks, Our next question comes from Linda Ezergailis with TD Securities. I have a question, just a follow-up on implications for Gibson on upstream producers and integrated consolidating. You touched on that your existing operations should remain strong and contracted. But I'm just wondering what sort of emerging opportunities and challenges there might be, not just as it relates to how larger consolidated producers might change their use of tanks and sanctioning of new tanks prospectively, but also as it relates to opportunities that your marketing business might have with fewer producers and integrators potentially in the markets physically and I guess financially on the marketing side. And also as it relates to over the long term your U. S. Strategy and the potential merits for DRU being higher or lower for certain consolidated producers? I would say thank you for the question, Linda. As producers consolidate, I think the demand that doesn't change the overall demand for tankage. They still need that number of days of storage and they still need the same blending services that we provide. So I don't see it actually changing. Hardisty is not overbuilt. And so that's one of the reasons we really remain confident on recontracting at Hardisty. And actually, there is some opportunities to continue to expand there as we move forward. If you look in the States, the consolidation in the States really has really no impact whatsoever on us. As the small producers consolidate there, I'll turn it over to Sean and see. Do you have any opinion there. Yes. No, I think consolidation. I mean consolidation in general, I mean, is good for the sector. I mean, it's going to cut cost of the sector and having strong customers is good for everybody, certainly in Western Canada and across North America. So I mean, we would be a fan of consolidation in general because it cuts cost out of the sector and creates stronger counterparties. And as Steve said, hard to see is not overbuilt. And even a stronger counterparty are going to have the same amount of production, they're going to need the same amount of tankage. So in general, we would view the consolidation trend that we're seeing as being marginally positive for us because it's going to create stronger counterparties for the company. And how might it affect your marketing operations over the long term and just the opportunities that present themselves in the markets for your marketing segment? Yes. I don't really see that I haven't seen that that's going to impact our marketing business at all. If you look at our marketing business, it's the main focus is the refined products business there in Moose Jaw. And then there is marketing opportunities at Edmonton and at Hardisty around some tankage that we do have there. But I don't see the consolidation playing a big factor in that on a go forward basis. I have not heard that that is a concern at all coming out of our marketing organization. Okay. Thank you for that context. Just as a follow-up, with regards to your capital allocation decisions, as the industry is in flux, some acquisitions might come up opportunistically for Gibson, whether it be tuck in acquisitions or larger ones. And for example, if producers that own assets or steel huggers decide to shed select assets or your competitors, How does Gibson evaluate the opportunities and the merits of acquisitions versus other priorities? Well, I think I talked about that earlier. Probably one of our most precious asset is that balance sheet and preserving that balance sheet. So if there are opportunities that do develop, the balance sheet is probably going to be one of our number one drivers in any kind of decision. So that quality of cash flow and that length of term and the counterparty risk is all going to be very important along to continue to assure that we have that balance sheet and we look more we continue to look like the type of investment that we are today. Thank you. Thank you. Our next question comes from Rob Hope with Scotiabank. You may proceed with your question. Good morning, everyone. Just one follow-up and clarification. Steve, in the prepared remarks, you made a comment about the lower end of the 2 to 4 tanks per year. Just a question there in terms of the time frame you're looking at. Are you looking at 2020 there? Or is the expectations that there'll be no tanks in Q4 and that will be at the lower end of the range in 2021? Yes. So when I made that comment, the 2 to 4 tanks, I think that's really over a longer period of time, right? So really over the next 4 to 5 years is where I'm when I made that comment. Not because I said that really this year that that's gotten pushed into next year. And you really these tanks do come lumpy. If you look at last year and the year before, they're pretty lumpy, so as far as when they're contracted. So really when I made that lower end of 2 to 4, that's in a longer term context, so really over the next 4 to 5 years. Okay. And then maybe just diving in that a little bit deeper. So that implies that I guess some expansion at Hardisty could be pushed into 2021. And then on top of that, you could get some TMX tanks towards the end of the year? Exactly right. All right. Appreciate that. Thank you. Thank you. Our next question comes from Robert Catellier with CIBC Capital Markets. You may proceed with your question. Hey, good morning. Most of my questions have been answered at this point, but I did want to thank you for the transparency on the marketing business, in particular your statement about not wanting to change your res tolerance to chase opportunities in a weak market. So I just want to make sure I understand the both the Q4 and the long term guidance as it relates to unrealized gains and losses. So my understanding is that despite the unrealized gain that was recorded in Q3, the expectation is that segment profit and EBITDA in Q4 will be very similar, close to that breakeven point you mentioned? Yes, that's absolutely correct, Rob. And the same thing for the $80,000,000 to $120,000,000 long term. Obviously, quarters you'll have gains and some of you'll have losses. But is the overriding assumption there that the segment profit will be very similar to the EBITDA and that the gains and losses will fluctuate a bit, but those two numbers will be the same? Yes, that's absolutely right. And that's really what we tried to get out in the prepared remarks that over time that those are always going to be the same. So I mean, just for example, if you look at last year, through the quarters, we had a gain or a loss in each individual quarter from the unrealized. So Q1 was a negative 3.4%, Q2 positive 6.7%, Q3 minuteus 12.2%, Q4 positive 6.3%. You saw over the course of the year the net impact was like $2,000,000 on a $197,000,000 marketing segment profit. And so again, over time, our expectation and they have to, they're going to be basically 0. So that's absolutely right. That 80 to 120 assumes over the course of the year that segment profit will equal adjusted EBITDA on a marketing basis if we reported like that. Yes. That's what I thought. Just my last question here. You touched on the curtailments a bit. I'm just curious as to what you're seeing from producer behavior in terms of the volume outlook on the one hand, the curtailments were lifted, but at 75,000 barrels, maybe not that impactful. And at the same time, we still have pretty anemic prices. So do you get a sense on sort of direction of production from the producers? I would just say that 75 coming on, I would say the conventional production in Canada is still kind of down that 20% to 30%, conventional heavy and conventional light combined. And the oil sand project, there are still several out there that are struggling to come back onto full production. So as those oil sands projects come into full production and the sanction and the restrictions are lifted, you're going to see the need for you're going to see inventory start to build again and you're going to see the need for rail. And we're already starting to see that at Hardisty with from May through August, we did not load a railcar out of Heark. And we loaded a couple out in September. We're going to load a couple more out in October. But that seems to those nominations continue to grow as this production starts to come back online. So we saw record low inventories in Canada and that was just as we had more egress capacity than we had production for a couple of months there. Okay. That's helpful. Thank you. Thanks, Rob. Thank you. Our next question comes from Andrew Kuske with Credit Suisse. You may proceed with your question. Thank you. Good morning. Probably first question is for Sean and it just relates to what was a pretty noisy quarter in the upstream with things like the Polaris outage and just some other issues with the oil sands producers. If those things didn't happen, is there a way to get a sense of how your quarter would have looked either on the infrastructure side or the marketing side? Do you have a feel for that? I mean specifically, no, I mean again, it's a loaded question with respect to marketing because what would have the impact been. I mean, I think Steve talked too about it. Right now, it is a bit of a sideways market for marketing. There's not very much volatility. Differentials are relatively narrow. Flat price is low. So specific to Polaris, I don't see that making a huge difference. And then on the infrastructure side, we actually think we had a pretty good quarter and that business continues to trend. So I haven't put thoughts specifically to what would be the impact if Polaris hadn't gone hadn't come down. But I don't think it actually would have had an absolutely material impact if you think about sort of the specific factors within the quarter. Okay. Thank you. And then just as a second question, could you just give an update on your land bank position, both in Alberta on the number of tanks that you think you can build over a longer period of time and then also at Wink? Yes. So I'll start it. We talked about it often. At Edmonton, we've got the ability to add roughly 2,000,000 or just slightly over 2,000,000 barrels. So at Edmonton, we are space constrained. At Hardisty, we're not space constrained. We've got directly south of our terminal, 240 continuous acres connected to our terminal. Even after we finished the build out of the top the hill, so think of that being circa 15,000,000 barrels, we're confident that we could double that footprint directly contiguous to what we have. And even if that got built out, then we've got additional land out near the unit train facility that we would next tie into. So from a Canadian perspective, hard to see basically unlimited land. Edmonton, we are constrained, but we're constrained similar to everyone else there and we've been fairly open about that. Steve, do you want to talk about our land position at Wink? Yes. We have a we own 3 20 acres there in Wink. We're really not limited in any path at all. We can build over 12,000,000 barrels storage at Wink if need be. Then you just building on what Sean said, we still have room to add 1,500,000 barrels in the top of the hill. And what that means is that that is at a very competitive we always say 5 to 7. And so those that means that most if not all the infrastructure is kind of built for that and we can be very competitive if any additional tankage need to be built there at Hardisty. Maybe just a final one, if I may, and it relates to Wink. Just given the market dynamic we see in pockets in the U. S. And in particular in that sort of neck of the woods, would you be better off buying versus building at this stage in time? Buying tankage at Wink, there is no real tankage at Wink except for off the so Wink is kind of the launching point for the Epic, the Gray Oak, the big pipeline, the big Exxon pipeline, that's the launching point out of the Delaware Basin into the U. S. Gulf Coast. And so the tankage being built there, we're the only ones really offering any real commercial or storage to the customers there. And our strategy was to connect to those pipelines and we're continuing to move forward. We're already flowing on 1, we'll be flowing on another one here in about a month and a half and another one in the Q2 of next year. So with that, one of the things one of our philosophies was those pipelines are going to be overbuilt and in them being overbuilt that the shippers are going to want there's going to be a large sucking sound to try to get volumes onto those pipes. And we wanted to provide that tankage and connectivity to allow those producers to connect with those marketers. And that strategy continues to play out. And we think it will be an effective strategy. Sorry, you can build that Hardisty set with effectively. Yes, somewhat. And even in my prepared remarks, I said we're connecting to 3rd party gathering. So we look to connect it to 2 third party gatherers by the end of the year. And so with that, we're just trying to drive liquidity and volume through our terminal and provide that kind of hard to see type of opportunity for either the producer who's trying to find that's a netback or a shipper, any shipper on the pipeline that wants supply to that needs supply to fill their commitment on the pipeline. That's great. Thank you. Thank you. And then I would now like to turn the I'm not showing any further questions at this time. I would now like to turn the call back over to Mark for any further remarks. Thanks, Josh, and thanks to everyone for joining us on this Q3 conference call. Again, I'd like to note that we made certain supplementary information available on our website, gibsonenergy.com. If you have any further questions, please reach out to us at Investor Relations at investor. Relationsgibsonenergy.com. Hope everyone has a great day and thanks for joining us today. Thank you. Ladies and gentlemen, this concludes today's conference call. 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