Earnings Call: Q1 2018

May 9, 2018

Good morning, ladies and gentlemen. Welcome to Gibson's 2018 First Quarter Conference Call. Please be advised this call is being recorded. I would now like to turn the meeting over to Mark Hyschez, Vice President, Investor Relations. Mr. Hyschez, please go ahead. Thanks. Good morning and thank you for joining us on this conference call discussing our Q1 operational and financial results. On the call this morning from Calgary are Steve Spalding, President and Chief Executive Officer and Sean Brown, Chief Financial Officer. I'd like to caution you that today's call contains certain forward looking statements that relate to future events or to the company's future performance. These statements are given as of today's date and they are subject to risks and uncertainties as they are based on Gibson's current expectations, estimates, judgments, projections and risks. Actual results could differ materially from the forward looking statements expressed today. The company assumes no obligation to update any forward looking statements made in today's call. Additionally, some of the information provided refers to non GAAP financial measures. To learn more about forward looking statements or non GAAP financial measures, please refer to the March 31, 2018 management discussion and analysis, which is available on our website and on SEDAR. Now, I'd like to turn the call over to Steve. Thanks, Brock. Good morning, everyone, and thank you for joining us. We're very pleased with the operational and financial results we delivered in the Q1. Also, we're making progress on delivering on our strategy over the last few months. I believe it's valuable to first speak to the quarter's results in the context of our strategy. We believe this quarter showcases the potential of the go forward business as the strong results were driven by the businesses that we're retaining. In our terminals position, we have a very dependable core business that provides long term cash flows visibility, underpinned by take or pay stable fee based agreements with primarily investment grade counterparties. Around the business, we have our wholesale business that optimizes our core infrastructure assets, providing incremental cash flows with opportunity to outperform in certain market conditions. And while the wholesale segment is certainly not infrastructure in terms of visibility or quality of cash flow, it is complementary. It must be appropriately sized relative to the core business and seen as an upside during certain market conditions. So the most important part of the financial results of this quarter would be the strong consistent contribution from infrastructure. With 2 tanks coming in service on January 3 at our Edmonton terminal, the quarter represented record numbers in volume, revenue and segment profit for the infrastructure segment. As we continue to place new projects into service, this run rate level of cash flow will continue to grow. Within our wholesale business, wide differentials supported both Moose Jaw and our crude oil wholesale business. As we do not rely on wholesale to pay our dividend, which is fully covered by the infrastructure cash flow, we have been conservative in how we budget this variable part of our business. For example, in 2018, we assumed the light heavy differentials of approximately $12 a barrel, whereas during the Q1, we saw roughly double that. To the extent that differentials remain wide, we expect to continue to outperform our budget outlook. And this outperformance of our base business is meaningful when it provides additional room within our payout ratio and leverage metrics and provides further cash flows to fund our growth initiatives. When we rolled out our strategy in late January, we were very confident that our growth capital in 2018 2019 were fully funded through the non core dispositions, and we would maintain an interim payout ratio below 100 percent while we work through those dispositions. At the end of the Q1, our payout was 92% of the on a 12 month 12 month basis and leverage was 3.6x. With higher wholesale contributions than our initial estimates, we have more room in our payout ratio and leverage than we expected when we put together our budget in late 2017, as we are still be well positioned if we saw the differentials closer to a more conservative budget assumption. In the quarter, we took some of the first steps in delivering our strategy. In February, we sanctioned $50,000,000 Viking pipeline projects. When we talk about levering the core assets and being commercially and customer focused, opportunities like the Viking pipeline are a product of that. Energy infrastructure is a competitive space for investment opportunities, and we believe the Viking project shows that Gibson can compete and more importantly, win. In March, we announced the sale of our U. S. Environmental Services business. That was a part of our business that approximately 1,000 people associated with it. So when we closed the sale, we effectively shrunk in half, today being around 900 employees. For context, a couple of years ago, Gibson was around 3,000 employees. Once all the dispositions are complete, we expect to have a lean and focused workforce of around 600 employees. The remaining dispositions are also presenting well. While Sean will provide more detail in his prepared remarks, I will say that we are confident that we will meet or beat our initial expectations for the disposition process in both terms of timing and proceeds. The other key deliverable in our strategy is to secure the growth opportunities we need to reach our 10% distribution cash flow target growth target. As we said before, our sanctioned growth projects and additional cost savings, we believe we have a clear visibility to delivering or exceeding the target through the end of 2019. Given that most of our projects have capital investment cycles of between 12 to 18 months from sanctioned to in service, the opportunities we are looking to secure during the balance of 2018 are really driving our growth in 2020 beyond. On the new tankage front, commercial development has really picked up, and we are in active conversations with more than a half a dozen counterparties with respect to new tank builds for both our Hardisty and Edmonton terminals. It is based on these conversations that we are optimistic that we will be able to sanction additional tankage during the balance of the year, thereby meeting or exceeding that 1 to 2 tank annual target we discussed in our January Investor Day. It is notable that the clear majority of the conversations are with new U. S. Refining customers or existing customers increasing their days of storage versus storage driven from the new oil sands productions. We appreciate there is the perception in the market that 100% of the tankage Gibson builds is connected to the sanction of new oil sands projects. But let me be clear, we think of the opportunity set to build tankage for downstream customers and customers with existing production that need more flexibility in these more constrained market conditions is very strong. We do continue to expect to secure the vast majority of new oil sands related tankage, especially at our Hardisty terminal. The way we think about terminals and our optimism around the opportunities the commercial tumor is pursuing is very different than last year at this time. Outside the fence in Canada, we continue to actively pursue additional opportunities. We don't believe that the sanction of a project like the Viking expansion was a one time success for Gibson. And we are currently advancing several gathering and pipeline opportunities in Western Canada. At Moose Jaw, in addition to the cost savings we expect to affect, we are also evaluating an opportunity to undertake some debottlenecking projects. The debottlenecking would probably add 20 percent to 25 percent of incremental throughput capacity at very low EBITDA investment multiples. If differentials remain at current levels, payback would be within a couple of years. In terms of the U. S. Strategy, we believe that we're on plan. You might recall that at the Investors Day, the first point in our U. S. Strategy was to get the team in place. To help complete that step, I'm very excited to announce that George Daneker has joined Gibson as our Chief Commercial Officer. George joins Gibson from one of the supermajors, and among his many skills, provides a deep understanding of the global crude oil dynamics, terminal optimization, market development and producer services. George will first be focused on the final build out of the U. S. Team and advancing our U. S. Strategy. In July, he and his family will move to Calgary, he will oversee all North America commercial activities, reflecting the fact that while we view U. S. As a promising opportunity, most of our growth will come from Canada. As the majority of Canadian's crude Canada's crude is exported to the U. S, understanding the crude oil business on both sides of the border is critical to providing services to our Canadian customers. Looking to the next step of our plan in the U. S, we seek confirmation on both the strategy to restore our trucking business in the Permian Basin and the SCOOPSTACK as well as our intention to build out infrastructure platform in the Delaware Basin around our pile gathering system near Wink. Understand using our trucking capabilities and pipeline injection stations as platforms to enable that grow. Departamine is filling up, and we are winning business, and our trucking business and injection stations are really that differentiator. So again, we are on plan, not ahead, not behind, just on plan. And we would expect the U. S. Trucking business and infrastructure business to continue to recover through the balance of the year towards our $10,000,000 to $15,000,000 run rate we look to reach sometime in 2019. So overall, we're very happy with the strong start to 2018. That said, we are very aware of the need to continue to execute strong operational and financial performance each and every quarter, complete the divestitures, control costs and sanction new growth. These are the things we are focused on, and we believe we are well positioned to deliver. I will now pass the call over to Sean, who will walk you through the financial results in more detail. Thanks, Steve. As Steve mentioned, from a financial perspective, we certainly had a very strong Q1. Before I speak to the details of the results, please let me remind everyone about the classification of some of our businesses as we work through the disposition process and the impact of IFRS 16. As we progress through the disposition process, certain businesses will be classified as held for sale and or as discontinued operations, so the geography may change a bit between quarters. In this quarter, with the sale of the U. S. Energy Services Business, U. S. Environmental Services and the U. S. PRDs have been classified as discontinued operations, so their contribution during the quarter is not included within continuing operations for either the income statement or the statement of cash flows. And on the balance sheet, the assets and liabilities are aggregated and reported separately under held for sale. Also, NGL Wholesale met the criteria to be classified as held for sale with similar balance sheet treatment. However, it is included in continuing operations for the income statement and cash flow statement based on the accounting rules. To provide the most consistent comparison between periods and to focus on the results that are most indicative of where the business is heading, we generally speak to our results on a continuing basis rather than a combined basis. The exception to this is distributable cash flow, which we continue to consider on a combined basis, so inclusive of the divested businesses for the period we held ownership, as this is the most indicative of the cash generated by our operations and the amount available for distributions. Also, as we indicated in our last conference call, this is the Q1 that we have presented our results under IFRS 16, which essentially means that leases are out of operating costs and replaced by depreciation on right of use assets. As a result, our segment profit, adjusted EBITDA and cash flow from operations will be higher on a comparable basis to prior periods, while net income and distributable cash flow are not impacted. During the quarter, these lease costs were $14,000,000 on a continuing basis and $15,000,000 on a combined basis. Because prior quarters have not been adjusted for IFRS 16, we have sought to be as transparent as possible in MD and A, financial statements and supplementary disclosure, and I will also highlight the larger impacts in my commentary. Speaking to the results, adjusted EBITDA from continuing operations of $93,000,000 represents a meaningful increase relative to the $71,000,000 earned in the Q1 of 2017. Adjusting for the $14,000,000 impact from IFRS 16, this quarter was still approximately $10,000,000 or about 14% higher than the comparable quarter last year. Distributable cash flow from combined operations of $65,000,000 was a 48% increase over the Q1 of 2017. Digging into the drivers of the financial results, total segment profit increased by $18,000,000 or just over 20% relative to the Q1 of 2017. This was driven by a higher contribution from infrastructure and the impact of IFRS 16. Within infrastructure, as Steve mentioned, the main driver of the increase was placing the 2 additional tanks at our Edmonton terminal into service. Additionally, there was an increase in tankage volumes at the Hardisty terminal relative to the Q1 of 2017 when several new tanks were still ramping up, and we also realized higher revenues on volumes trucked into the terminal this quarter. On the operating cost side at the terminals, we have seen a decrease of approximately 10% relative to the Q1 of 2017 as a result of the cost initiatives implemented last year. Also, performance from our Canadian PRDs was a little strong in the Q1 of this year than last year, which helped offset the reduced contribution from our injection stations in the U. S. Within our Logistics segment, with the sale of U. S. Environmental Services, that business has been moved into discontinued operations, meaning segment profit of $4,000,000 for the quarter would exclude any contribution from U. S. Environmental Services. In the remaining truck transportation businesses, in Canada, volumes were down over the Q1 of 2017, but margins were generally stronger. In the U. S, volumes were down relative to the Q1 of last year as a result of ending our exclusive injection station agreement with our main trucking customer in late 2017. In wholesale, with the wide differentials, there was the opportunity for the segment to post a great quarter and what we realized was more of a good quarter. Adjusting for $11,000,000 of impact from IFRS 16 related to railcars, the Q1 was only slightly ahead of the Q1 of last year. With the wider differentials and tight egress environment, the crude oil business had a very strong quarter as we were able to realize opportunities to purchase crudes at heavily discounted levels. Our optimization strategies also benefited from the wider differentials, although limited egress reduced the volumes we're able to move to market. Within our refined products business, wider differentials expanded our margins due to the ability to purchase discounted input feedstocks with output products generally remaining benchmarks to WTI. But while light heavy differentials averaged about US24 dollars per barrel for the quarter, segment profit within refined products was only modestly above budget for a couple of reasons. The first factor was that despite being a long term rail customer at Moose Jaw, we are impacted by a shortage of rail service, and there are several weeks during the quarter where we are only able to get partial service, impacting our ability to move products to market. Absent a potential CP strike, we believe that real service should be fairly reliable for the balance of the year, but we are also looking to prevent or further mitigate potential service disruptions next winter. The second factor was the use of FIFO accounting at Moose Jaw, meaning that some of our products sold during the quarter and even some inventory held at the end of the quarter would have an associated cost reflecting crude purchases at tighter differentials and implicitly a lower margin. We don't expect this will have a major impact going forward. The contribution of MGL wholesale was weaker than initially anticipated as propane price remained fairly weak through the quarter and rail service disruptions also impacted our ability to move product. Looking forward to the Q2 for wholesale, based on the current differential environment and performance experienced to date, we believe the segment could generate between $20,000,000 $30,000,000 in segment profit for the quarter. This would be based on a slightly stronger contribution from Moose Jaw than the Q1, a similar or slightly lower contribution from crude oil and no contribution from NGL wholesale as we are now in the summer storage seasons. G and A expense in the Q1 was just over $8,000,000 a decrease of about $1,000,000 relative to the Q1 of last year. There are a couple of things moving around with that G and A number, with about $2,000,000 in building leases related to IFRS 16, as well as some movements in non cash allocations. But what is most important is that we are seeing our costs come down. Looking more directly at salaries and wages, those have come down more than 13% relative to the Q1 of last year, demonstrating the cost savings initiatives that we've been talking about are being realized. Importantly, these reductions are not coming at the expense of capability, and we are, in many cases, doing more with less. For example, in our operations and engineering group, the organizational changes we put in place have improved consistency and performance while utilizing less staff. In terms of interest expense, we saw a decrease of about $5,000,000 in the Q1 of 2018 relative to the Q1 of 2017. The decrease is primarily a result of the refinancing of our notes, which was one of the cost saving initiatives we completed last year. With $65,000,000 in distributable cash flow from combined operations generated in the Q1, the trailing 12 month figure improves to $205,000,000 and implies a payout ratio of approximately 92%. We continue to see the business performing very well into the 2nd quarter and on a full year basis. With the strengths in the wholesale segment, we see the potential for our payout ratio to be somewhere between 80% 100%. And looking into 2019, we would also expect to be in that range. While we won't lose the contribution from several non core businesses we are divesting, those cash flows will be largely replaced with projects currently under construction and continued cost savings. And we feel we have clear line of sight to both. Likely, the key variable of where we will be within that range is our results in wholesale. To the extent differentials remain wide and there is certainly a case for this upside scenario with the pipeline egress outlook for the next few years, we should be towards the lower end of the range. That said, while we are very pleased that Wholesale's recent performance, we are not relying on that business' outperformance to maintain a payout ratio below 100%. We are very confident that the high quality cash flows from our Infrastructure segment will continue to underpin the current level of our dividend and the payout ratio will continue to decrease towards our target range of 70%, 80% as new projects are placed into service and cost saving initiatives are realized. Total growth capital investment during the quarter was $26,000,000 with the entire amount attributable to the construction of new tankage and related infrastructure at the Hardisty and Edmonton terminals. The construction of the 1,100,000 barrel expansion at Hardisty is currently trending ahead of schedule with cost below plan. For the full year, our capital outlook remains between $165,000,000 $205,000,000 Similar to the decrease in our payout ratio, our strong financial performance during the quarter helped decrease our leverage at the end of the quarter to 3.6x trailing 12 month pro form a adjusted EBITDA. Importantly, we remain fully funded on our growth capital program through the end of 2019 via disposition proceeds with significant available capacity on our revolving credit facility. Subsequent to the quarter, we also extended the maturity of the revolving facility into March 2023 and amended certain covenants, including our maximum consolidated total debt leverage ratios through the end of 2019 to provide additional flexibility as we work through our dispositions. On the disposition front, as Steve mentioned, things are progressing well. Near the end of the Q1, we announced the sale of our U. S. Energy Services businesses, including U. S. Environmental Services and the U. S. Seismic Business for approximately CAD125 million with both parts of the transaction closing late last week. Of the dispositions we talked about at our Investor Day, this one was likely the most challenging due to the wide group of businesses it included, and we are very happy that we have that transaction complete and sold in its entirety. We're also very close to completing the divestiture of our non core U. S. Trucking assets and injection stations. This was not a large business and aggregate proceeds are expected to be in the 5 $1,000,000 to $10,000,000 range. At that point, we will finish all of our non core divestitures in the United States and we'll be left with a very focused suite of assets in the Permian and SCOOPSTACK. In Canada, our NGL divestiture continues to advance well with 1st round bids having been received and we are working to put both the truck transportation and non core environmental services businesses into the market in the next few months. While it's far too early to say how long the processes will take, there is certainly the potential that these could be announced by the end of the year. In all, Performance Server business was very strong during the quarter and we continue to improve our financial position while advancing our strategy to focus on growing our long term high quality cash flows within the Infrastructure segment. The divestitures are proceeding well, and we will meet or beat our initial proceeds and timing outlook. At this point, I will turn the call over to the operator to open it up for questions. Our first question comes from Jeremy Tonet with JPMorgan. Good morning. Cover a lot of ground with the prepared remarks there. Just wanted to touch base with the divestiture process a little bit more and it seems like you're making a lot of good progress there. But Sean, just wondering as far as the multiples that you have realized and expect to realize going forward, is that still kind of in line with your expectations at this point or any upside or downside versus kind of your expectations since the Analyst Day? Thanks, Jeremy. From a multiple perspective, really there's no update. At the Investor Day, clearly, we had visibility into what the sales price would be for the U. S. Environmental Services business. So no change there. No change in the multiples for anything else. If anything, and you would have seen it in the investor deck we posted online, We do have some optimism around certainly our Canadian truck transportation and non core Canadian environmental services businesses potentially being accelerated from that mid-twenty 19 timing, but that would really be the only update that we'd provide in around that. That's helpful. Thanks. And then pivoting to rail, you provided some good color there, but I was wondering if you might be able to expand a bit more as far as kind of recontracting environment right now and how you think about that at this point given tightness in the market? Our partnership with USD there and USD leads those negotiations with when it comes to recontracting. But most of the recontracting is really dependent upon the railroads and the contracts with the producers and the railroads. I think USD is ready to move forward. A lot of the current negotiations are really with the railroads and the producers. That makes sense. Thanks. And then just a small kind of cleanup. It looks like Moose Jaw volumes were a bit lower during the quarter. I was just wondering if you could talk about that a little bit and just kind of general realignment of the facility and your thoughts going forward with that asset. Yes. I mean, Jeremy, we were set to really have a really good quarter at Moose Jaw and we were impacted by the rail business. This is a business that was very steady. We used that rail every month of the year and yet we were curtailed and it did result in us downturn have a downturn on that facility of about 20% below what we wanted to run just because we couldn't get the railcars in and out of the facility during the quarter. Great. Thanks. And just want to clarify, I think you touched on this early in the call, but wanted to make sure, it seems like the progress for new contracting of terminals is progressing nicely. And even if there's delays with TMEP or L3R, it seems like that's not adversely impacting your negotiations or could be helpful at this point? Most of our negotiations are really focused on the big U. S. Refiners that need this heavy sour high tan crude and it's also focused on some of the producers that want to use the unit train facility out of the terminal. And the other one is really we've seen an uptick in existing customers that are looking to expand their residence time because of the takeaway pipeline issues. That's all for me. Thank you for taking my questions. Our next question comes from Linda Ezergailis with TD Securities. Thank you. Maybe you could just give us a sense of some of your comment around you're looking at ways to mitigate any sort of risk of potential rail service disruption next winter. Can you comment on what the options might be there and would it add to your cost potentially on the margin? We're currently in negotiations to see how we have more reliable offtake from our terminal, which could result in potentially take or pay volumes, right, on the utilization of that facility. So then the buyer or that the counterparty would buy at the plant gate or something? Is that how you would mitigate rail service disruptions? No. We have our own railcars coming out of Moose Jaw, and we deliver into the market. So we would negotiate for firmer service with the railroad. Okay. And then can you also maybe just confirm big picture my sense that the outlook has improved versus your January Investor Day and even your Q4 conference call, given the commodity price tailwinds, especially now that some of the rail service disruptions seem to be behind you? Thanks Linda, it's Sean here. I guess it depends on which part of the business you're actually referring to. As Jeremy alluded to, we covered a lot on the call. And if you go through the various parts of the business, the infrastructure business from a financial performance perspective is really quite readable. So we wouldn't expect a lot of variability in that business and that is a result of the restructure we've gone through. So I'd say from a financial performance perspective, really we're sort of in line with where we would expect to be and expected to be at Investor Day. Really where we are seeing more optimism certainly is in the wholesale business and specifically in the crude oil. And the refined products part of that business, differentials did benefit that business in Q1. We spoke to it in our prepared remarks, certainly in the crude oil side, less so on the refined product side, which we hope will be alleviated in Q2. But this is not the business that we necessarily depend on. But from a level of optimism perspective, certainly that side of the business, we would be more optimistic as we move through the tail end of the year or through the middle to the tail end of the year. And then the logistics side really is sort of in line with what we had expected at Day. The other part of the business where I think we probably do have a bit more optimism is contracting the new tanks and just some of the business development activities given the customer discussions that we are having right now. So it really depends on which part of the business you're speaking to and around optimism that I'd say certain parts are exactly as we'd expected and other parts we probably are a bit more optimistic. And would it be fair to say that your discontinued operations even if you don't necessarily accept higher proceeds or higher multiples because potential buyers will be kind of looking through where you are in the cycle, that your financial contributions for those prior to sale from discontinued operations would be higher potentially than you were contemplating earlier this year? No, not necessarily. I mean, if you mean from the Environmental Services South business specifically in Q1, that actually came in modestly above budget, what we had budgeted late last year. And then the other business segments, it's certainly from the ones that we're divesting, probably in line with what we'd expect, certainly not significant out contribution from them. Thank you. Thanks. Our next question comes from Patrick Kenny with National Bank Financial. Hey, guys. Just wanted to get your thoughts here on both TMX and Line 3 being somewhat in limbo right now and what that might mean for your storage business over both the near term and long term if both these projects keep getting pushed back or worse yet not built at all? So we certainly hope they are built for Canadian's long term production growth. On the short term basis, we talked a little bit about that and how it might impact us at Hardisty, both on the relatively short term of rail contracts, which are 3 to 5 year contracts and the egress out of the Hardisty unit train facility and also the increased storage really at Hardisty to manage these egress issues. If you're running at 2x storage, that's pretty tight. So many of the people are looking to increase their storage capacity there to really manage these curtailed pipeline nominations and how to actually get their product into the market. So yes, we are seeing some positive upbeat on a short term basis. But on a long term basis, we want growth in Canada And that's what really drives our business on a long term basis. So we need these pipelines. Thank you. Our next question comes from Robert Kwan with RBC Capital Markets. Good morning. Just to kind of first touch on the potential for new tanks. You mentioned both existing customers looking to tank take tank days up in addition to refiners. I'm just kind of wondering from the refining side first, do you get the sense that they're looking to try to pick off cheaper barrels and then move them? Or is that going to be more associated with rail expansion? Yes, I don't think it's about refiners aren't looking to pick up the cheaper barrel. They're looking to pick up the barrel that really fits their refinery and to kind of blend up that barrel here in Canada to make the move down to the States, whether or not it's PADD II or PADD III to get into the sophisticated refineries that really need this Canadian crude oil, as the Venezuelan and Mayan crude continue to drop off. I guess I'm just wondering, do you think that's associated with rail expansion at hard to see just given the lack of pipeline capacity if they're going to be bigger buyers and taking barrels. That is a potential, Robert, that some of the refiners have do have interest in the unit train facility. Okay. And then from your existing customer point of view, do you see that as being tied to some changes in nominations, especially into the Enbridge mainline? Or do you see other factors that need to be resolved before some of those come to fruition? Yes, that's difficult to say. I'd say with the refiners, they're really focused on how do you get that firm capacity out of the basin. So they want the expansions of the mainline of they want Line 3 in service. But then I also want that reliable rail off take. They're going to be dependent upon this steady flow of crude oil to the refinery. Got it. If I can just turn to the quarter on the infrastructure side of things, you commented on the OpEx performance and it sounds like that's going to be ongoing. On the new Edmonton tanks, did they reach full contracted run rates in the quarter or is there more ramp on those? And then it sounded like there was a bunch of volumes at Hardisty over and above the take or pay volumes. I'm just wondering what that trend has continued or not continued into the Q2? So at Edmonton, we did get full run rate. I mean, we did get full earnings through the whole quarter, which was we came on 6 months early there with those tanks and we're actually 25% under budget on our tanks at Edmonds too. So really good job by our engineering firm. Then when you look at Hardisty and why we're seeing kind of record throughputs, that's focused primarily on the tanks that we put in service last year and the Fort Hills volumes coming on in the quarter. So we've reached over 1,000,000 barrels throughput through our terminal in the quarter, and that's driven primarily by the Fort Hills volume starting to come in late in the quarter. Got it. And so are you seeing similar volume trends here in the 2nd quarter, I. E. Q1 was even though it was it seems like it was firing on all cylinders, there's no reason for anything to kind of drop off as we No, we see kind of Robert, we're seeing steady growth there as Fort Hills continues to ramp up. So Robert, I think, Gabe, in the answer I had to a previous question, I think what you're getting to, we the infrastructure segment really performed as we had budgeted it. Again, given the ratable nature of that segment, it performed in line with expectations and we would expect it to continue to perform in line with expectations, which is fairly similar to Q1, save for the small downtick that you'll see in Q2 due to the Moose Jaw facility fee being reduced due to the turnaround. But we do expect Q1 to be a fairly ratable quarter. Okay, perfect. And then if I can just finish on wholesale, you had mentioned that one of the things that hurt in the quarter was the limited egress. You talked about the rail issues just in general and those resolving themselves. I'm also just wondering is the lack of and likely the ongoing lack of pipeline access, Is that a similar was that largely kind of the apportionment of the problem in Q1? And I assume that will be continuing to be a problem until we get some expansion capacity in place? Yes, I mean, Canadian production continues to grow and the pipeline capacity is not growing. So obviously, in the quarter itself, we did add some impact from line outages. So but you will continue to have line outages in the future and we'll continue to see these large variations in WCS to WTI. Okay. On the quarter, I think this quarter is clean to us, right? I think we're trading $15,000,000 to $20,000,000 off in this quarter. But the 3rd and the 4th quarter are trading 20 to 22 off. Okay. So even though there's still some limited egress, it sounds like there were some things that were very limited to Q1 and therefore, while overall we have tough pipeline access, things should be a little bit better for egress from a wholesale perspective? Yes. We see our wholesale business doing better through the year than we budgeted or last year. Perfect. Thank you. Our next question comes from Robert Catellier with CIBC Capital Markets. Hey, good morning. You've answered most of my questions, but I'm just I'd like a little bit more color on loosening the covenants when you renewed for another year. Can you give us some thinking as to why the covenants were loosened? Because it looks like based on your comments on the asset sales and the actual performance of the business, you don't actually need that extra leeway. Thanks, Robert. Really just out of the abundance of caution. As we exited 2017, our leverage is at 4x. Under our previous covenant package, we are 4.2x for the balance of 2018. And notwithstanding the fact that we did see the potential for some outperformance in wholesale as we moved into 2018, that's certainly not something I'm going to rely on from either a leverage and or a dividend perspective. So it really was just out of the abundance of caution as we move through the asset dispositions we've talked about with the lens of us having been at 4x as we exited 2017. I just thought that a quarter turn was too tight, notwithstanding some of the visibility we had into our performance as it moves through the year. I mean, it's now a standard factor of 3.6% at this quarter. It's a decision I would make absolutely again. Okay. So then when you turn that lens to growth, it does sound like you're a little bit more optimistic on the need for new tanks. So if those in fact do come opportunities come to you sooner than expected, You're in that sort of situation where you have a high class problem, but if you don't want to stretch your leverage, what is the plan to fund any additional growth? We have our view remains, if anything, we think our asset sale proceeds will meet target or exceed target. We still very much feel that we're fully funded for the growth profile, even if we do secure some additional tankage. If you think of when that build will likely occur, that's a 2019 capital spend. It matches up well with the dispositions we have. We are seeing some outperformance in our business, certainly relative to the budget. So from a fully funded dividend perspective and a growth capital perspective. So our view is that given the lens we have on capital projects currently announced and sanctioned and once we see in the future that we are fully funded certainly through the next 2 years. Yes, that makes sense. And has there been any changes to your thinking about Moose Draw? And in terms of how it fits into the long term portfolio? We're in the same place we were at the Investor Day, which is we're going to begin to high grade that facility, which is improve the margins by lowering our fee cost, improve our sales price in relationship to the of our products, in relationship to WTI and expand the facility that 10 that 20% to 25% on a really high multiple. We're talking a 2.5 to 3 times multiple of EBITDA. And also there's several other smaller projects in the facility to that we're looking to really high grade that facility and really watch our cost of operating the facility. So we have a lot of work still to do at that facility before we'll before we would relook at how it fits in our long term forecast. But right now, it fits very well. Okay. Those are all my questions. Congratulations on the good quarter. Thanks, Rob. Our next question comes from Patrick Kenny with National Bank Financial. Sorry about that earlier. My line got cut off there. Just to circle back on the pipeline issues here. You may have covered this already, but I just wanted to ask you with respect to some of the discussions you're having with customers for additional tankage. If there's been any impact on the pace of these negotiations that you might be having with oil sands producers or are they just kind of steady state at this point? Yes. At a Hardisty, it's probably accelerated some of the discussions. And out of Edmonton, it's probably set back some of the discussions. So because Edmonton is more of Trans Mountain type of expansion opportunities. Okay, great. And then just to switch gears over to the NGL wholesale business, given that it's up for sale. Again, might have missed this, but could you provide maybe the contribution from NGL wholesale within segment profits in Q1? And then maybe an update on the last 12 months EBITDA contribution from NGL wholesale? Yes, we haven't split it out for the quarter. The guidance that we've generally given for that business is think of it as sort of a $10,000,000 to $20,000,000 EBITDA business. That guidance per year, that guidance really hasn't changed. But we didn't split it up to the quarter. I think we're fairly clear in our prepared remarks that for the wholesale business as a whole, we felt that the crude oil business outperformed expectations. The NGL business somewhat underperformed expectations. Refined products very, very modestly outperformed expectations, which could have significantly exceeded it. But beyond that, for the quarter, we're not we haven't disclosed a specific contribution. Okay. Yes, Fair enough, Sean. Great. Thanks, guys. Our next question comes from John Brunsnicki with Canaccord. Hey, obviously, a lot of discussion out there about Permian infrastructure constraints. With that in mind, can you just give us an update here on what you think your assets in that market can do in that type of environment? Yes. The Permian has really taken off. We're seeing record trucking usage in the Permian Basin. We've seen margins increase significantly in the basin for the trucking. Again, there's 2 issues in the Permian Basin. 1 is getting from the Delaware Basin into Midland. There's big restraints there. And then from Midland, either into Cushing or down to the Houston Ship Channel on the Gulf Coast. So our business is pretty robust right now when it comes to the trucking business and we're really kind of focused on getting our injection stations up and going. And we're positive on the pilot system. We hope that we will place the pilot system back in service in the Q3. That pile gathering system, which is in the Delaware Basin just south of Wink there in Ward County. Great. That's terrific color. That's all for me. Thank you. Our next question comes from Rob Hope with Scotiabank. Good morning, everyone. A question on the Viking pipeline. Since you sanctioned that project, have you been able to have discussions with additional customers either on additional commitments on that line or the potential for similar projects? Yes. We do always continue to talk to other customers in the area. When we did sanction it, we sanctioned our kind of our 3 main shippers. And to date, we have not sanctioned any more customers on that pipeline, but we do feel confident in the future we will add similar to Viking. All right. That's helpful. And then just maybe a question on the quarter. Looking at the logistics business with a, let's say, continuing segment profit of $4,300,000,000 how do you see that progressing through the rest of the year just in terms of activity absent additional sales? Yes. Thanks for that. I mean, I think as I discussed earlier from a logistics perspective, it sort of performed as we've expected and we've expect similar performance throughout the year. I mean, the Canadian trucking business last year did just under $25,000,000 We'd expect it to be very similar this year. Steve had mentioned it earlier, the U. S. Business, we expect to be positive in the tail end of the year. So but not a significant financial contribution this year, certainly. What we saw in Q1 or what we saw in 2017 for that business, we don't expect it to be dramatically different this year. Thank you. Our next question comes from Ben Pham with BMO. Okay. Thanks. Good morning. I had a question on some of the operating stats at Hardisty and Infrastructure. And I'm wondering with the volumes moving quite strongly, are you turning the tanks much more frequent in each month than maybe your base plan or what's embedded in the take or pay thresholds? Yes, Ben, we're right on schedule and on budget when we think of throughput that we were going to see in the year. I would say we're just right on budget of where we were. We expected to move that 1,000,000 barrels a day through the facility and we are. And we continue we will see a slight increase in the Q2 and the Q3 as production in the oil sands continues to grow. Okay. And can I ask you then with the less of the focus on trucking, the sale there and then kind of coincide with the Viking pipeline, Was that related to some extent where you're less focused on trucking created more opportunity to think about moving pipes to the terminals? Ben, when we they had nothing to do with each other. So when we looked at the trucking business and whether or not it was core or non core, we saw Canadian trucking continuing to see heavy competition into the future. And we didn't see a long term growth opportunity for trucking in the Canadian market. And so we decided that it was really non core to what we could do and it's a capacity that we believe we can contract on a go forward basis. And I'm not sure if Sean or Steve, you guys touched on the payout ratio in your earlier remarks. But it looks like in recent presentation, it looks like your payout ratio ranges are moving more to the positive then. Is that because Q1 is a bit better than expected or is that what's driving that change? Thanks, Ben. I think I alluded to it certainly in my prepared remarks. I mean, if you remember at the Investor Day, we took a fairly conservative lens as to how we talked about the business. We've moved through Q1. There was some outperformance in wholesale certainly. That did drive the payout ratio down and it has changed the lens for the full year. I think the key distinction for us here is that we are absolutely confident that we'll be below 100% even with a very modest contribution from wholesale. But given the outperformance in wholesale, we could certainly see that payout ratio driven down much lower as we move through the year. But again, I mean, from a budgeting perspective, how we think about things, we're not relying on that because those are wholesale cash flows. And really, what we focusing on is our infrastructure cash flows to underpin that dividend and our leverage levels. Okay. All right. Thanks, Ron. Thanks, everybody. I'm not showing any further questions at this time. I'd like to turn the call back over to Mark. Thanks, Kennen. Thank you for joining us for our 2018 Q1 conference call. I'd like to note that we have also made certain supplementary information available on our website atgibsonenergy.com. If you have any further questions, please reach out to us at investor. Relationsgibsonenergy.com. Again, thank you for joining us today and have a great day. Thanks. Ladies and gentlemen, this concludes today's presentation. You may now disconnect and have a wonderful day.