Earnings Call: Q4 2018

Mar 5, 2019

Morning, ladies and gentlemen, and welcome to the Gibson Energy's 2018 Full Year and Fourth Quarter Conference Call. Please be advised this call is being recorded. I would now like to turn the meeting over to Mr. Mark Hichas, Vice President, Strategy, Planning and Investor Relations. Mr. Hichas, please go ahead. Thank you, operator. Good morning and thank you for joining us on this conference call discussing our full year and Q4 2018 operational and financial results. On the call this morning from Gibson from Calgary 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 would like to turn the call over to Steve. Thanks, Mark. Good morning, everyone, and thank you for joining us today. 2018 was truly an outstanding year for Gibson Energy. On a financial basis, 2018 adjusted EBITDA of $457,000,000 and distributable cash flow of $284,000,000 were both new highs for the company. The financial results we delivered last year demonstrate how our new strategy and continued focus on operational excellence has taken us in the right direction. Today, we are very different Gibson Energy than we were at the start of last year. We are a company focused on oil infrastructure and a business driving 10% plus per share growth through infrastructure investments. The market is starting to take notice. When we announced our strategy and hosted our Investor Day in January of last year, the vision we talked about was very different than the Gibson Energy people knew. We needed to deliver on many fronts to move the company forward. We said Gibson Energy would become oil infrastructure focused and exit its non core businesses. We have closed the divestiture of 4 of the 5 of those businesses. We expect we will complete the final sale of the Canadian truck transportation business on schedule by the middle of this year, with aggregate proceeds within our target range. We said that Gibson Energy would grow at least 10% per share. To reach that growth, we needed to deploy $150,000,000 to $200,000,000 a year in infrastructure capital. In 2018, we deployed $300,000,000 in oil infrastructure capital, with most of the capital spent on building tankage at Hardisty. Exiting 2018, we had 7 tanks under construction, representing a 35% expansion of the Hardisty terminal. This was achieved against a backdrop of challenging industry conditions, demonstrating that our Hardisty terminal is a platform that can grow and deliver value to our customers across all business environments. Last week, we placed 3 of these tanks in service. They were 3 months ahead of schedule and on budget. Last fall, we doubled our long term outlook for tankage capital. At 2 to 4 tanks a year, we are growing our distributable cash flow a little less than 10% per share based on tankage alone. We remain confident in contracting 500,000 to 1,000,000 barrels of tankage per year based on our current discussions with customers. This year, we have already sanctioned 1 tank, and we are negotiating with customers on additional tanks. We delivered on our strategy to grow outside the fence in Canada. In 2018, we sanctioned the $50,000,000 Viking project. In December, we placed the pipeline in service ahead of schedule and on budget. This is the first pipeline of any significance Gibson Energy has built in over 20 years. We are excited about the infrastructure position Gibson is building in the U. S. Around our pilot system and into the emerging Wink Hub. In 2018 2019 combined, we are deploying approximately US100 $1,000,000 to expand the pilot gathering system and connect multiple export pipelines at Wink. In 2020, we expect EBITDA from our Pyote Wink assets to be at least US20 $1,000,000 per year. Moving forward, we will continue to invest in building infrastructure around our Wink position, providing us another platform to reach or exceed our growth targets. Putting it all together, with the growth we sanctioned in 2018, we have clear line of sight to deliver 10% plus distributive cash flow per share growth into 2020, and we are confident we will grow at that rate or better, well past 2020. What can't be overlooked are the changes made within the organization. We have already built a winning culture at Gibson Energy. With the changes we have made at every level in the organization, we're now truly commercially minded and focused on operational excellence. The last part of the strategy outlined at the Investor Day that I want to address is the strength of our balance sheet and security of our dividend. With our strong financial performance in 2018, driven by both the infrastructure and wholesale parts of our business, We are well ahead of plan. At the end of 2018, our payout ratio of 67% was below our 2020 target of 70% to 80%. Net debt to EBITDA was 2.3x, well below our target of 3x to 3.5x. Perhaps most importantly, our $500,000,000 of sanctioned capital for 2018 2019 is fully funded through disposition proceeds and retained cash. In summary, our financial results in 2018 were outstanding, setting records for adjusted EBITDA and distributed cash flow for the full year. We are executing on our strategy. We are doing what we said we would do. With Gibson Energy being the top performer in our peer group in 2018, the market is starting to take notice. And just as importantly, the future remains very bright for Gibson Energy. We are excited about the next phase of growth for the company and look forward to providing more details at our upcoming April Investor Day. I will now pass the call over to Sean, who will walk us through our financial results in more detail. Sean? Thanks, Steve. As Steve mentioned, we had a very strong 2018, setting new high watermarks for both adjusted EBITDA and distributable cash flow during the year. As you've heard us talk about on prior calls, for both the full year 2018 and in the Q4, the results were driven by a very strong predictable contribution from the infrastructure segment, while wide crude oil differentials help push wholesale well above the top end of our expectations. Looking first at our key metrics on a 4th quarter basis, adjusted EBITDA from continuing operations of $134,000,000 was slightly lower than the $140,000,000 earned in the Q3 of 2018. Breaking that down by segment, infrastructure was in line after adjusting for the one time net benefit we recorded in the Q3 at Edmonton. Importantly, terminals and pipelines is right around the $60,000,000 per quarter run rate we have been at since the Edmonton tankage was placed into service at the start of 2018 with the next step change to occur in Q1 2019 with the sanction of the 3 new tanks or 1,100,000 barrels at Hardisty in February of this year and the Viking pipeline entering service. In wholesale, segment profit of $81,000,000 in the 4th quarter was a $13,000,000 increase from the $68,000,000 earned in the 3rd quarter. However, in the Q4, we had a $13,000,000 unrealized gain relative to a $4,000,000 unrealized loss in the 3rd quarter. As a result, even though our aggregate segment profit was up from the Q3 to Q4, adjusted EBITDA from continuing operations was down marginally. In summary, the 4th quarter results in wholesale were meaningfully above our expectations. While the government of Alberta's announcement on December 2, 2018 quickly compressed differentials, it had a limited impact on our feedstocks into Moose Jaw as the trading cycle for December delivery had already finished. In fact, in the Q4, Moose Jaw benefited from some of the lowest cost feedstocks of the year. Also, with the wide differentials, we are able to use our asset base to work with customers to ship crude by rail to premium markets and the volatility seen in the Q4 also created opportunities for the wholesale group. Looking into the Q1 of 2019, we expect wholesale will post another strong result likely in the range of $60,000,000 or greater. Our optimism is largely due to some one time opportunities created by the volatility in the market following the intervention by the Alberta government. Beyond the Q1, we expect that while differentials are likely to push out towards levels that will support incremental crude by rail to help clear the glut of oil in Western Canada with the managed production curtailments, we aren't likely to see the same wide differentials as in 2018. As a result, the contribution from wholesale in the last three quarters of 2019 is likely to remain at or above mid cycle levels, but we are not budgeting for wholesale to remain at levels expected in the Q1 of 2019 or seen in the last three quarters of 2018. Moving quickly to our logistics segment, now encompassing only our U. S. Truck transportation business from a continuing perspective, we are pleased to say it was in the black in the Q4. We have focused on rightsizing the overhead in that business in the past few quarters and wide differentials in West Texas caused by the lack of egress improved our truck volumes. That said, we still expect U. S. Truck transportation to be around breakeven in the near term as those differentials have since tightened and we've seen decreases in both hauls and volumes at our injection stations, which are reported under infrastructure. On a distributable cash flow from combined operations basis, the 4th quarter result of $84,000,000 was effectively in line with the 3rd quarter's $85,000,000 While adjusted EBITDA from continuing operations in the 4th quarter was slightly lower than in the 3rd quarter and replacement capital in the Q4 of $10,000,000 was higher than prior quarters of 2018 due to several small projects mainly within the infrastructure segment. This was more than offset by slightly lower taxes and adjustments for certain non cash items related to sold businesses. Turning to a year over year comparative, 2018 was simply a much, much stronger year than 2017. Adjusted EBITDA from continuing operations of $457,000,000 was effectively double the comparable results in 2017 And distributable cash flow from combined operations of $283,000,000 was $103,000,000 or 57% higher than in 2017. Segment profit from infrastructure was $48,000,000 higher, an increase of 20%. Our cash flows from this segment, particularly from terminals and pipelines are very stable and grow mostly as we place new assets into service under long term take or pay and stable fee based contracts. At the start of 2018, we placed 2 new tanks into service at our Edmonton terminal and 2018 also benefit from higher throughput volumes, mostly as a result of a ramp up in production from an oil sands project with dedicated tankage at our Hardisty terminal. Our wholesale segment had a spectacular year with segment profit of $211,000,000 a $180,000,000 or nearly 6x increase over 2017. About a 5th of that increase was due to the adoption of IFRS 16 in 2018, where segment profit is reported before the impact of about $40,000,000 in lease costs, but very clearly the main driver was the wider differentials and other opportunities created by the volatility and displacement in the Western Canadian crude market. With the combination of the stable cash flows from infrastructure and the significant contribution from wholesale, our financial position at the end of 2018 was much stronger than at the end of 2017. Our payout ratio improved from 104% to 67%, which is below our 70% to 80% target range. Our net debt to EBITDA improved from 4x to 2.3x with EBITDA increasing and alter our net indebtedness decreasing by about $145,000,000 while funding a sizable capital program. Looking forward, we remain fully funded for all our capital projects without the need for external equity and we continue to build cushion each quarter we see upside from wholesale and as we start to place these infrastructure projects under construction into service. In terms of the divestitures, since our last call, we have announced and closed the sales of wholesale propane and non core environmental services North for proceeds of approximately $100,000,000 bringing proceeds from the non core divestitures to $225,000,000 We continue to progress the sale of Canadian truck transportation, Although we would acknowledge that the weakening sentiment around oil and gas in Western Canada has had an impact in the process, we still believe we will be able to complete the process within the initial midyear timeframe and aggregate proceeds from the dispositions are expected to be in or around the midpoint of our target range of 275 dollars to $375,000,000 So in summary, in reiterating Steve's point, we had a very strong 2018 both in terms of financial performance and the execution of our strategy. Our infrastructure segment continues to provide visible, high quality growth and the upside earnings from wholesale have meaningfully improved our financial position. Our payout and leverage ratios are now below target levels. We're fully funded with ample ability to fund more capital and we have one more disposition to work through. We are very pleased with how things are going and we'll look to sustain the momentum in 2019. At this point, I will turn the call over to the operator to open it up for questions. Our first question comes from Patrick Kenny with National Bank Financial. Good morning, guys. With respect to the Alberta government's contracts here with the rail companies, are you guys involved or do you expect to be involved at all either at Hardisty or Edmonton with a similar deal to load those cars starting this summer? And if so, can you speak to what your contract structure might look like with the government and what the financial benefit might be? Thank you, Patrick, for the question. We never talk about any customers that we actually do any contracts with. And then when it comes to the actual terminal itself that any transactions that would be done at the actual rail terminal are done by our partner, United USD. Got it. And then just on the Line 3 news here, do you expect this to have any negative impact on your discussions right now with shippers for new tankage or at least the timing of when you might be able to sanction the next 1 or 2 tanks? Does everything get pushed back a year on year end as well? That really kind of depends on what the government does with curtailment. USD is looking to actually expand that terminal more to help alleviate some of the bottlenecks in Western Canada. Obviously, the most important thing is that, that line does move forward in the future for the health of Flushing Canada crude oil. That's great. And then last question maybe for Sean here. Assuming the sale of the Canadian trucking business goes as planned by mid year, would you be expecting a pretty quick turnaround from S and P with respect to reviewing the potential upgrade to investment grade. I believe the last review was in August. Can we maybe expect a similar timeline for a review this year? Thanks, Pat. As you're aware, really the timing of the review is out of our control. You're correct, they did upgrade us in August of last year. My plan would be to go in and see them certainly once we've announced the sale of trucking with sort of a new investor deck to just walk them through the story and where we sit right now to hopefully try and expedite the review ahead of that August timeframe. But out of our control, but certainly it is an initiative that we will look to move forward on. Okay. That's great. Thanks a lot guys. Our next question comes from Rob Hope with Scotiabank. Good morning, everyone. Maybe a first question just on the allocation of capital. You're exiting 2018 well ahead of where, I guess, what was communicated at your Investor Day, given the strong wholesale results. When you look at excess capital moving forward, how are you thinking about putting it to work, whether it be continuing to pay down debt, invest in either new organic projects, M and A or increase the dividend? Thanks, Rob. A great question. I mean, 1st and foremost, I think as you would have seen at the end of the quarter or year end, leverage is at 2.3 times. So really not a focus on reducing debt. Given our spend profile initially would be to reduce debt, but then that really is just temporal in the fact that our biggest priority would be to deploy into infrastructure growth capital. So to the extent that is there, which we have seen, you would see that we've got a $2,000,000 to $2.50,000,000 current growth capital target. The basis of that was $200,000,000 in sanctioned capital at the time we put that out, plus potential upside of another 50. With the sanction of the tank we announced week that would push us to the higher end of the $2,000,000 to $2,500,000 already as we sit here in early March. So absolutely from a deployment of capital, it would be in the high quality infrastructure growth projects that we're currently pursuing. To the extent beyond that, that we didn't have additional opportunities, which is certainly not what we see here. I mean, then we'd look to probably redeploy proceeds to shareholders in some fashion, be that through a buyback or otherwise. But M and A really is not a focus for the management team right now. Okay. That's great. And then just a more granular question. The outlook for wholesale in Q1, just given that diffs moved in pretty quickly in December, can you walk us through some of the dynamics that are giving you that $60,000,000 plus for wholesale? Yes, absolutely. So again, the $60,000,000 plus is a mix of refined products plus crude marketing. If you think of the shape of that 60, it's really January has been the strongest month, which we do have some visibility on. Refined products still benefited from some of the cheaper feedstock purchased pre curtailment And the crude marketing business did set up some positions in December that had crystallized in January. So it really is a probably January would be the strongest month of the 3. The other part is I would remind people that if we think forward to Q1, it's really just not the wholesale story. So we did come out on the call or prepared remarks with the $60,000,000 but do want to remind people that from an infrastructure perspective and a tankage perspective, specifically, we've talked about it being extremely ratable with the step changes being with the sanctioning or commissioning of new projects. So we'll remind people that we will get a bump in infrastructure in Q1, A, from the Viking pipeline that was put into service in late December and then B, from the 1,100,000 barrels or 3 tanks that we just put into service on March 1. All right. Thank you. Congrats on a good quarter. Thank you. Our next question comes from Jeremy Tonet with JPMorgan. Good morning. Just wanted to pick up on the wholesale as well. As far as what mid cycle might look like, just wondering if you could provide any thoughts there, where it could be post 1Q? If I look at 1Q 'eighteen, it was $30,000,000 If I look at 2017, it was also about 30,000,000 dollars So how do you guys think about bookends in the cycle and where mid cycle wins for wholesale post these Moose Jaw enhancements that you're in the process of doing? Yes. Thanks, Jeremy. So I don't think I'm going to provide bookends necessarily. But what I will say is, as we think about mid cycle generically, we think of that as being on an annual basis, something in the range of $60,000,000 to $80,000,000 for the wholesale business. So if you think about the entirety of 20 19, we've talked about $60,000,000 for Q1 here. If you think of the $60,000,000 to $80,000,000 that would imply $15,000,000 to $20,000,000 per quarter. So on a full year basis, as we sit here today and we'll certainly update this at Investor Day and as we move through the year, depending how the business progresses, but that would imply sort of $100,000,000 to $120,000,000 on a full year basis. That's helpful. Thanks. And maybe I'm getting a little bit ahead of myself here with what you might talk about Investor Day. But just wondering for the U. S. Platform, what do you think next steps could look like here post the current PiYo expansion you're doing here? What more do you think is possible there? There's a lot of competition in that area. So would future U. S. Expansion be kind of concentrated more there? Or could you build off the injection stations kind of elsewhere in the U. S. And then kind of do more there? Well, Jeremy, this is Steve. I would say the project itself, the East Pyote project is going very well, and we expect to place that in service in late Q3 of early Q4, kind of on time, on schedule. The volumes look really good there. As far as what we're going to do in the U. S, we really want to talk about that at Investor Day. We do have a lot of opportunities that we are currently chasing. Got it. That's it for me. Thank you. Our next question comes from Linda Ezergailis with TD Securities. Thank you. Maybe this is something that will be addressed more at Investor Day, but I'm just wondering where you're at in realizing your efficiencies in your Moose Jaw Refinery? And at what point might you revisit, whether or not it's a core strategic asset to keep holding on? I'm just trying to think of what conditions would be in place for you to consider a strategic divestiture or an opportunistic one? Thanks, Linda. It's Sean here. I'll take that. So as you said, really right now, what we are focused on is the efficiencies exercise are really cutting costs there. I think that has progressed extremely well. Really the next focus is on the debottlenecking exercise or the expansion of the facility. We would expect that to be completed sort of the end of Q2 and that is absolutely the focus right now. As you'd be aware, Moose Jaw contributed significantly to the funding of our capital in 2018 and as we even look into Q1 2019. So as a whole, we would still view the facility as absolutely being core. And we do get the question a have you have you assessed the impact of the acceleration in CCA incentives announced by the government in November on your cash tax outlook over the next couple of years? And can you just give us a sense of what you see in terms of cash taxes generally? So, thanks for that. We have investigated it and really the primary place that we think there will be an impact is at our Moose Jaw facility. It's not really or our view is it's not going to be a material impact. But similar to 2018, as we look forward to our cash taxes, really where we pay the majority of our cash taxes would be on our wholesale earnings. We've got sufficient NOLs in our U. S. Business to offset any income there. And given the capital spend on our terminals business, we have CCA pools there as well. So as we think about cash taxes really think about applying sort of your standard tax rate to applying your standard tax rate to sort of what you would forecast for the wholesale earnings and going from there. That's great. Thanks. I'll jump back in the queue. The next question comes from Robert Catellier with CIBC. Yes. Thank you. You've I think answered my question here by responding to other questioners, but I was really wanting to dig into the Line 3 delay, what it means for your these increasingly these increasingly volatile differentials could increase the need for tanks in the short term, but arguably may slow long term demand. And I wanted you to speak to that. And if that's the case, then will these recent delays in pipeline capacity additions we've seen over the last 6 months require the company to look at another growth platform other than the existing initiatives you have underway today? Well, if you look at our tank builds, our tank builds are 12 to our tank builds are really 16 to 18 months out. And so Line 3 is still within that window. We do continue to talk to customers at Hardisty for building tanks out at Hardisty. Then also, if it continues to get pushed, USD is looking to expand that facility additional an additional railcar a day or almost an additional railcar a day, which would add additional tankage. As far as the government goes, their intervention as far as cutting, that does actually have a negative impact on movement of railcars out of USD due to the price differential. New platform, I don't know about any new platform. We kind of like our platform in the Permian and at Hardisty and at Edmonton. Right. And so the calculus I'm really trying to get at here, I don't want to overlook the growth that you've had in the last year and all the while you were advancing some other priorities including deleveraging. But if you look at the current dynamics, can you still get to the 10% per share cash growth with the current market dynamics being delayed pipeline additions and the ongoing government intervention? Or do you need another asset platform to help you get there? Yes. Thanks, Rob. It's Sean here. No, we don't think we do. I mean, if you think about the Line 3 delay, really the biggest question is what government intervention will you have? But again, we've got to remember that our primary customers at Beelstands are extremely long term in thinking and capital planning. So even though Line 3 is disappointing, it is somewhat temporal in nature. So it's call it a 12 month delay. So it's not like people are changing decades long capital plans in around a 12 month delay. So our optimism in the tankage front hasn't really changed. Our optimism on our U. S. Platform hasn't really changed. That is one of the reasons that we think it's important we have a U. S. Platform because it is something outside of tankage. So no, our view is not that we need to move into a a different vertical or platform to try and deliver on what we've previously talked about. Okay. Thanks for the additional color and congratulations on achieving your targets. Thank you. Much appreciated. Our next question comes from Andrew Kuske with Credit Suisse. Thank you. Good morning. I think the question is probably for Sean. And when you look at the quarter and Q4, obviously, a lot of volatility in a number of respects. Could you maybe give us just some context on your risk management systems and how they stood up in the quarter and any changes that you made really for the following quarters? Yes. I mean, that's a good question. The risk management system, this is probably a better one taken off line. But I mean in general, we've got a risk management system that monitors all activity. We get trade signals that come in depending on a bar limits and those bar limits weren't triggered at all during the quarter. We do also have trade signals that are impacted through changes in sort of mark to market positions and they go to different levels, be it me, Steve or even the Board. And so given the volatility, there was an increase in trade signals in the quarter, but everything was handled appropriately, everything was within the limit. So really no concerns from that perspective. I mean, I think we have a very robust risk management system that worked extremely well. And the other side of this is that if you think about this, the vast majority of anything we're doing on that side is really just offsetting physical position. So it's sort of back to back hedges. So even if you think about the unrealized gain that we experienced in the quarter that would have been in our wholesale segment profit, but was backed out from an adjusted EBITDA perspective, that would have been a position that had an offsetting physical position. So as crude prices fell during the quarter and ended the year below where they started, certainly at the quarter or the start of December, we would have had a gain on a hedge there that was offsetting a physical position. So the hedge actually worked. And as you moved through January, you would have seen that hedge crystallize, but again, you would have had an offsetting mark to market to that. So what would tell you that the hedge was actually effective for the quarter. So really no concerns that I have from a risk management perspective and no material changes. I think with Steve on board, he's got some thoughts from a risk management perspective, but that has nothing to do with sort of increasing volatility in the quarter. Okay. That's very helpful. And then maybe if you look back to the last Investor Day and the plans that you laid out given the year that you've had, just from a financial standpoint, how much farther ahead of your initial plans are you at this stage? And then when you think about the flexibility that you have, and maybe the segues into your ex Investor Day, how do you allocate that flexibility? I mean, if you just go from the actual materials, you would have seen that we expected for 2018 2019 that we were going to be in a range of 3 to 3.5 times from a leverage perspective and we are going to be in a range of probably 70% to 80% or sorry, closer to 100% from a payout ratio perspective, which was really growth in infrastructure being offset by the loss of cash flow from divestitures. So as we exit 2018 here, we're really quite far ahead. As opposed to that 3 to 3.5, we're at 2.3 times. And as we exit from payer ratio perspective 67% relative to the range of 70% to 80%, so well ahead. If you think about what do we do with that extra flexibility, I think we're doing it right now. You would have seen an expanded capital program really all towards the high quality infrastructure in 2018. We've got a capital program. At Investor Day, we talked about spending $150,000,000 to $200,000,000 to drive the targets that we put forth. And as we sit here today for 2019, we've got a capital budget of $2,000,000 to $2,500,000 I've already talked about earlier in the call that with the sanction of the tank last week, that's going to push that to the higher end of that $2,000,000 to $2.50 And we'd expect that we'll further update that at Investor Day. So really what this is allowed to do is remain fully funded as we increase our capital all directed towards the high quality infrastructure projects that we have. Okay. That's great. Thank you. Our next question comes from Robert Kwan with RBC Capital Markets. Great morning. Just wondering as you think about how producers might think about new tankage and the Line 3 delays, you guys are thinking it's a little more temporal than anything. With the high wholesale, every quarter you deliver results like this, you can pretty much build another tank. So I'm just wondering, is there any contemplation of building 1 or 2 tanks on spec, given you've got the balance sheet and the cash flow to do that? Thanks, Rob. It's Sean here. Really, our philosophy hasn't changed in around that. As you know, historically, we've sanctioned tanks only backstopped by long term contracts. Where that has changed slightly is or not changed, but as you know, we have and we will continue to build an operational tank, which is really a tank that's required as we do a turnaround on tanks so that we can keep all the tanks in service. As we move forward here, philosophically that viewpoint hasn't really changed. The only instance where I could see us looking to potentially build an unsanctioned tank would be if there's significant economies of scale of building within an existing footprint or burn. So if for example, we sanction additional tank or 2 and there was economies of scale of building sort of the 3rd tank in that existing footprint or burn, that is something that we'd consider. But philosophically, we're not going to move to a model where we just start building sort of tanks on spec, on mass, because of the excess capital that we have generated in wholesale. Got it. And I guess if you think about what you've just announced, presumably if you're not putting another tank in there for yourselves, but the economies of scale don't kind of support that activity right here, right now? That's what I think we'll continue to evaluate as we move forward. I think certainly we are completing that top of the hill build out right now. And really the decision tree for that will depend on sort of the next wave of sanctions that we have here. Our preference, of course, would be to sanction up all the tanks immediately to complete the top of the hill build. But that is the question if we have room for an excess tank and it's unsanctioned, I think that would be a decision for us because there certainly would be economies of scale on that instance. Got it. Okay. Turning to wholesale, you've given a number of different things to think about. I guess first on Q1 2019, the $60,000,000 or greater. Is that number mostly cash or is there an embedded mark in that number? No, that would be cash. Okay. And then just the general below what you reported in Q2 2018 through Q1 2019, but above kind of that mid cycle. Is that on a reported basis or is that on a cash basis? I would think as we think about full year, I think about it on a cash basis. But again, I wouldn't think of the reported and cash to be dramatically different. Okay. Got it. Maybe if I can just finish. If you think about your rail activities on wholesale, certainly you kind of continue to hear the numbers in that high teens or so fully loaded to the Gulf. I'm just wondering, when you look at your wholesale activities in that space, can you break down within that total number roughly what the fixed versus variable to move? Yes, Robert, I'll answer that one. This is Steve. Currently, we're not railing any we're not in the crude rail business. So as far as breaking down fixed versus cost on a rail basis to get to the cost I mean, get to that $18 that's not a business that we're in, in our wholesale business as far as crude oil goes. And do you have a but do you have a rough sense of what those costs might look like in terms of the breakout? I would say it really depends on your contract with the rail company. So if the rail company is fixed, it's going to be closer to the majority of that's going to be fixed cost. So it really depends on the contract the company has with the railroad. Obviously, if you do tankage with us, that's fixed cost. If you do anything with USD, that's fixed cost. Railcars are fixed cost. So really, it's that transport with CP or CN and then whatever railroad that they're using in the States. That's and the negotiations there on the unit train, whether or not it's fixed or variable cost. Obviously, there would be some sort of fixed cost in that. Got it. Okay. Thanks very much. And I'm not showing any further questions at this time. I'd like to turn the call back over to Mark. Well, thank you everyone for joining us for the 2018 Q4 conference call. Again, I would like to note that we have also made certain supplementary information available on our website, gibsonenergy.com. If you have any further questions, please reach out to us at investor. Relationsgibsonenergy.com. Thanks again, and we look forward to hosting everyone at our Investor Day on April 2 in Toronto. Have a great day. Thanks a lot. Ladies and gentlemen, this does conclude today's presentation. You may now disconnect and have a wonderful day.