Earnings Call: Q4 2015

Mar 2, 2016

Good morning, and welcome to the Gibson Energy 2015 fourth quarter and year-end results conference call, in which management will review the financial results of the company for the three and 12 months ended December 31st, 2015. I will now turn the call over to Tammi Price, Vice President of Investor Relations and Corporate Development. Please go ahead. Thank you, Melanie, and thanks everyone for joining us this morning. During today's call, forward-looking statements may be made. These statements relate to future events or the company's future performance and will use words such as expect, should, estimate, forecast, believe, or similar terms. Forward-looking statements speak only as of today's date, and undue reliance should not be placed on them as they are subject to risks and uncertainties which could cause actual results to differ materially from those described in such statements. The company assumes no obligation to update any forward-looking statements made in today's call. Any reference during today's call to non-GAAP financial measures such as EBITDA, adjusted EBITDA, pro forma adjusted EBITDA or distributable cash flow is a reference to a financial measure excluding the effect of certain items that would impact comparability. For further information on forward-looking statements or non-GAAP financial measures used by Gibson, please refer to the 2015 fourth quarter and year-end management's discussion and analysis issued yesterday by the company. In particular, the sections entitled Forward-Looking Statements and Non-GAAP Financial Measures. All financial amounts mentioned in today's call are in Canadian dollars unless otherwise stated. Participating on today's call are Stu Hanlon, President and CEO, and Don Fallis, Chief Financial Officer. Also joining us today is Sean Brown, who will officially be assuming the role of Gibson's new CFO at the end of business today. The format for the call will be that Stu will provide an overview of our results, and Don will highlight a few items regarding our financial position and capital spending. This will be followed by a question and answer session. Cam Deller, our Manager of Investor Relations, and I will be available after the call to answer analyst modeling questions. With that, I'll turn it over to Stu. Thanks, Tammy, and good morning, everyone. Before we get started this morning, I'd like to officially welcome Sean Brown to Gibson’s family as our new Chief Financial Officer. As we announced in February, Sean has joined us from BMO Capital Markets, has many years of experience in the Canadian energy infrastructure sector, and a history with Gibson’s that goes all the way back to our IPO. I and we look forward to his leadership and contribution to Gibson’s success. I'm pleased to have this opportunity to discuss our fourth quarter results, which are highlighted by the generation of CAD 101 million in adjusted EBITDA, which contributed to annual 2015 adjusted EBITDA of CAD 386 million. Our performance in 2015 represents an approximate 15% reduction over our record 2014 results, largely in line with our expectations, given the industry headwinds we faced. Reviewing industry conditions in the fourth quarter, WTI prices declined 9% over the third quarter to average approximately $42 per barrel, and Canadian heavy oil prices declined 15% over the third quarter to average approximately $37 per barrel. Generally speaking, fourth quarter commodity prices dropped below a sustainable level for most producers in North America, and as expected, activity levels declined in nearly all of our operating areas. Further impacting activity levels in the fourth quarter was the fact that many of our producer customers chose to wind down operations earlier than normal for the Christmas holiday as a cost-saving measure. These factors combined to negatively impact certain of our activity-based segments in the fourth quarter. Throughout 2015 and into the current year, we have responded to the challenging energy sector conditions with cost alignment initiatives. These include an approximate 15% reduction in overall staffing levels across the organization and optimization of operations throughout the business. An example of this is a consolidation of certain physical locations as well as management oversight with our truck transportation and environmental services segments in the U.S. We also decreased our annual corporate general administrative costs by approximately 15% after normalizing for one-time severance costs and the loss in the year on financial instruments, which we use to hedge our stock-based compensation. Strong performances in our terminals and pipelines and propane and NGL marketing and distribution segments, both of which were as expected due to recent capital investment and lower sensitivity to activity levels, counteracted some of the performance pressures felt in other business segments. We believe this performance offset between business segments provides a unique benefit to Gibson shareholders, offering cash flow diversification, counter-cyclical exposure, and multiple avenues for growth over the long run. As we consider the severity and duration of this current downturn in the global energy industry, I'm extremely pleased with our overall fourth quarter performance and how our business has weathered the storm over the past 18 months. I'll now discuss the individual segments in more detail. Our terminals and pipelines business achieved record quarterly segment profit with CAD 40 million generated in the fourth quarter. Continued volume growth at our Hardisty terminal, plus an earlier-than-scheduled commissioning of our project to enhance pipeline connectivity to the Athabasca system, contributed to strong sequential revenue growth in the fourth quarter. Additionally, segment profitability improved over the third quarter. This improvement was aided by the capture of greater economies of scale in our terminal operations and reduced repair and maintenance costs compared to the prior period. I'm tremendously proud of the operating achievements of this business segment in 2015, with both storage capacity and throughput volumes reaching record levels. We continued to progress the expansion of our Hardisty assets in 2015, commissioning 900,000 barrels of storage capacity on the east side of our terminal. Also in the year, we commissioned two projects that enhanced pipeline connectivity. One, a connection to the recently twinned Cold Lake system, and most recently, as I previously mentioned, another to the Athabasca system. All of these infrastructure projects are underpinned by long-term take-or-pay contracts with strong creditworthy customers. The commissioning of these projects contributed materially to achieving record volumetric throughput at our Hardisty terminal in the fourth quarter of over 600,000 barrels a day and increased storage capacity at our Hardisty terminal by 18% to 6 million barrels at the end of 2015. Accomplishments so far in 2016 include the completion of the storage optimization project at our Edmonton terminal, which will increase fee-based revenue at the terminal and enhance our ability to capture quality arbitrage opportunities within our marketing segment. Looking forward, we are making excellent progress on our ongoing terminal expansion plans, consisting of 2.9 million barrels of storage under development at Hardisty and an additional 300,000 barrels of storage and related rail infrastructure under development at Edmonton. These projects are principally underpinned by high visible production from specific oil sands projects that are currently under development or are in a production ramp-up phase. Despite today's challenging oil price environment, we remain confident in the near and medium-term growth profile of oil sands production, given the resiliency of our customers' project development plans and their financial strength to withstand near-term oil price volatility. Our key oil sands customers have the capacity to take a long-term view on oil prices, given the reserve life profile of their major development projects. In the interim, they are realizing material operating and capital cost efficiencies in the current deflationary environment. Similarly, here at Gibson's, we are also realizing favorable capital efficiencies and benefiting from increased certainty with completion schedules of our infrastructure growth projects currently under construction. Taking all of these developments into consideration, we expect to see strong segment profit growth in our terminals and pipelines business in 2016 and again in 2017. Our environmental services business faced continued challenges in the fourth quarter, generating segment profit of CAD 11 million. These results were expected given the particular weakness evidenced in the Bakken drilling and completion activities and its impact on our business, in particular on our production services business line. While competitive pressures and continued customer requests for rate reductions pressured overall segment profitability, we were able to maintain relatively stable gross margins as a percentage of sales on a quarter-over-quarter basis due to our aggressive cost reduction efforts throughout the year. Considering further weakness in crude oil prices to date in 2016, we expect to see additional capital spending restraint amongst our customers and continued pressure on our more activity-reliant business lines throughout the remainder of this year. In response, we have continued to drive further cost alignments into our environmental services business in the first quarter of 2016, identifying a further CAD 4 million-CAD 5 million in annualized run rate savings. Our strategy remains in place to continue to shift the profile of our environmental services business towards more stable production-related revenue sources. In the interim, we are positioning the business to capitalize on the rebound when prices and oilfield activities return to more sustainable levels. Truck transportation generated segment profit of CAD 11 million in the fourth quarter of 2015, essentially flat over the prior quarter as similar headwinds persisted. Specifically, fourth quarter volumes declined modestly over third quarter levels due to weakness in certain U.S. markets. While volumes were impacted throughout 2015 by lower drilling and completion activity, competition in the marketplace, and production curtailments in certain basins, I'm pleased to note that the rate of decline has moderated in recent months and loading schedules are stabilizing in certain operating areas. Gibson's truck transportation operation is one of the largest independent crude oil haulers in North America. It offers a high degree of scale, logistical expertise, and flexibility that should enable us to outperform smaller competitors throughout this commodity price cycle. In the interim, we have and will continue to proactively reduce our costs and position ourselves to thrive when conditions become more favorable. Complementing our variable cost structure that enabled stable gross margins as a percentage of revenue, we reduced overhead expenses by 13% in the fourth quarter of 2015 over the same period in 2014. We will continue to reduce our operating costs as we progress through 2016. Our propane and NGL marketing distribution segment delivered record fourth quarter results with CAD 31 million in segment profit. These results were achieved despite the impact of unseasonably warm weather in Western Canada. Despite these weather challenges, the industrial propane business proved its financial resiliency in the quarter, posting stable profit margins on a per-unit basis. Our wholesale propane and NGL business continued to capitalize on a strategy to employ a larger fleet of pressurized railcars, which delivered volumetric gains and generated strong segment profit contribution. Overall, we are very pleased with the record fourth quarter and annual results this business segment delivered in 2015. We look forward to the possibility of benefiting from a more normal weather pattern in the back half of this year as the current El Niño event dissipates. Our processing and wellsite fluids business faced difficult business conditions in the fourth quarter, generating segment profit of CAD 7 million. Reflecting continued weak demand for wellsite fluids, fourth quarter sales volumes of frac fluid were down 55% over the same period in 2014. Despite these challenges, the business benefited from low input costs and, demonstrating its countercyclical characteristics, delivered steady segment profit when measured as a percentage of sales. Overall, I am pleased with how this segment performed on an annual basis, which is testament to the team's proficiency in managing feedstocks, operating costs, and product slates to maximize the performance of this asset. Our outlook for this segment in 2016 incorporates similar business conditions as 2015, with an expectation of strong road asphalt demand in the summer months being offset by continued weak wellsite fluid demand. Our marketing segment generated CAD 12 million in the fourth quarter, contributing to full-year results of CAD 35 million. We are pleased with this outcome as we successfully navigated through several summer months where industry conditions were challenged by forced supply disruptions and rapidly narrowing oil price differentials. Reflecting improved business conditions in the fourth quarter, marketing results were in line with our expectations and posted similar segment profit levels to quarterly run rates achieved in 2014. Now looking into 2016, although we expect continuing challenges in this business environment, we are confident that marketing's overarching strategy to maximize asset utilization in our other business segments will provide the best long-term returns to our shareholders. In summary, I am happy with the financial and operating results we reported in the fourth quarter of 2015. Certainly, while faced with numerous challenges in 2015, our business model has proven to withstand the weak environment comparatively well. Gibson's has made good progress on adjusting to the marketplace dynamics, and we are well positioned for success as we execute on our capital expenditure and operational plans for 2016. Now I'll pass it over to Don, who will discuss our capital expenditures and financial position. Don? All right. Thanks, Stu. Initially, I'd like to highlight Gibson's capital expenditures in the fourth quarter, where we spent CAD 87 million on growth capital and CAD 9 million on maintenance capital. Our growth capital expenditures were primarily directed towards the following key initiatives, the Statoil tank and expansion of related infrastructure at Edmonton, the storage tank expansion project on the east side of the Hardisty terminal, and the Athabasca pipeline connection enhancement project at Hardisty. These expenditures contributed to total growth capital spending of CAD 346 million during 2015, which turned out to be approximately 12% below our guidance levels. The shortfall from guidance is primarily directed or related to minor timing differences, but it's also reflective of the increasing capital efficiencies we're experiencing. As a reminder, in December of last year, we announced growth capital expenditure guidance for 2016 in the range of CAD 200 million-CAD 300 million. The CAD 200 million low end of the range represents projects that are currently underway within our terminals and pipeline segment, the majority of which are underpinned by long-term fixed-fee contracts. The CAD 300 million high end of the range includes an additional CAD 100 million for projects that are currently being negotiated or are under consideration. While the recent secondary decline in oil prices in 2016 will certainly have a negative impact to our customers' cash flow and their investment plans, our growth capital budget will proceed as planned as it supports the long-term development objectives of some of our largest and most creditworthy customers. I'm pleased to report that Gibson's continues to maintain a strong balance sheet. In this regard, at the end of 2015, our debt to debt plus capital ratio was 45%. Our leverage ratio, total net debt to trailing 12-month pro forma adjusted EBITDA, was 3.2x, and our interest coverage ratio was 4.6x. Gibson Energy's has sufficient liquidity to execute our business plan. At year-end, we had CAD 83 million of cash and CAD 432 million available under our CAD 500 million revolving credit facility that has an August 2020 maturity date. The first tranche of our outstanding long-term debt does not mature until July 2020. These lengthy time horizons provide us with ample financial flexibility going forward. The company declared dividends of CAD 161 million in 2015, while distributable cash flow for the year was CAD 220 million. Thus, dividends declared represented 73% of distributable cash flow, or 64% on a net cash basis if you consider DRIP and SDP participation levels in the first half of the year prior to these programs being suspended. As announced yesterday, we are modestly increasing the company's quarterly dividend by 3% to CAD 0.33 per common share. The decision was largely based on the high degree of certainty we have regarding incremental cash flow associated with the terminal infrastructure we currently have under construction. As our expansion projects at our key terminals all enter service by the latter half of 2017, we expect to see our payout ratio move back more in line with our longer-term target of 50%-60%. In addition, after we complete these projects, the stability of our cash flow will continue to improve, with the percentage of weighting of long-term fixed-fee revenue increasing significantly. That concludes my comments. I'll turn it back to Stu. Thanks very much, Don. In closing, 2015 was a year of challenges, yet remarkable accomplishments for Gibson Energy's. In the first half of the year, we announced new commercial agreements to build incremental storage capacity at our Hardisty terminal. We then continued the successful delivery of new tankage and enhanced pipeline connectivity projects to our customers on time and on budget. Delivery of these projects not only offers our customers the crude oil infrastructure that is critical to their ongoing operations, they also serve, as Don mentioned, to grow and strengthen our cash flow profile. Additionally, we drove meaningful cost reductions into all areas of our business as we successfully adjusted to the lower activity environment, and finally, we remained focused and disciplined with our capital allocation. Notwithstanding the extremely difficult industry conditions faced by all those involved in the energy sector, our outlook for Gibson's remains positive. We have weathered many storms over the company's 60-plus year history, and we remain confident in our ability to continue to provide shareholder solutions that also deliver long-term growth and attractive returns for our shareholders. Now, notwithstanding the fact that Don successfully removed this from the script, I'd like to take this opportunity to formally thank Don Fallis for his 23 years of extraordinary service to Gibson's. It's been a privilege to work with a man with his capability, a man with his integrity, and a man whom I'm very proud to call my friend. Don has been instrumental to our success. He leaves GEI in a position of strength and with an abundance of opportunities in front of us. Don, on behalf of myself, the management team, and most importantly, the shareholders of Gibson Energy, thank you very much for 23 years of extraordinary service. Thank you very much, Stu. That concludes our prepared comments. Melanie, at this time, we'd like to open the call up for questions. Once again, please press star one at this time if you have a question. There will be a brief pause while the participants register. Thank you for your patience. The first question is from Linda Ezergova of TD Securities. Please go ahead. Thank you. First of all, Don, I wanted to congratulate you on a successful career and wish you all the best in your retirement. Thank you, Linda. Now, I just have a question about your staff reduction, your 15% staff reduction. Can you give us a sense of where it was in the organization? Was it maybe a little bit more heavily weighted in your business development group, for example? You gave us some sense of the management changes. Is that a permanent rebase in terms of doing things differently, or can we think that might flex up again as oil prices recover and activity levels recover? Yeah, it's really across the board, Linda. I would say that the first impacts and the earliest impacts were certainly in more activity-laden parts of our business. As we watched the rig count fall in the U.S. and in Canada, as an example, those crews that were dedicated to providing particularly environmental services impacts at the rig site were first impacted. We have, throughout the year, been proactive in terms of reducing headcount throughout most of the areas of our G&A. We have the luxury of having the vast majority of our truck fleet, the tractors employed in our truck fleet, being owner-operators. Notwithstanding the fact that you see a 15% reduction in our headcount, we have also been able to right size what otherwise would be a fairly high fixed cost, because it is almost a purely variable cost within our truck transportation business as well. Second part of your question, is this more permanent in nature? Our adage is you never let a good crisis go to waste, and so we have taken this opportunity to make sure that we are driving efficiencies into the business, which we assume will be largely permanent in nature, so that we can take advantage of those greater efficiencies as we start to see the commodity price cycle return. Okay, thank you. Just as a follow-up, in terms of your capital optimization, can you talk about some of the offsetting factors? I mean, you're facing FX headwinds as it relates to anything you're procuring in U.S. dollars, but can you talk about what sort of other savings you're being able to do to more than offset that potentially? Yeah. Most of the savings are in the sort of construction phase of these operations. As Don said, we're not only seeing better pricing, but we're also gaining more certainty in pricing. What otherwise, two years ago, what would've been a time and materials-based contract, now we can do on a fixed cost contract. That allows us to have greater certainty with respect to the pricing of some of these big capital builds that we have. We're also seeing, quite frankly, higher quality as we're able to take advantage of the fact that we can now employ the A team in some of these projects. It's essentially better, faster, and cheaper across the board. Still more than offsetting the FX headwinds. Absolutely, yeah. Great. Thank you. Thank you. The following question is from Benjamin Pham of BMO Capital Markets. Please go ahead. Yeah, thank you. Good morning. I had a question about your credit facility expansion. There's some commentary in the report about some covenant changes. Could you expand on that a little bit more, your interest rates changing there, and if there was some potential, I guess, from your side that your prior covenants didn't give you guys enough flexibility looking to 2016? I think, Ben, when we do our modeling and we look at 2016, certainly as we do our stress testing, we didn't foresee the need and necessity to go out for covenant relief. Having said that, it was essentially something that we knew that we could achieve, and so almost like as an abundance of caution, we decided to have that conversation with our banks, a relatively supportive and benign conversation. No changes really with respect to interest rates or any additional costs to GEI. It just provides us with, like I said, an abundance of caution type of flexibility should we need that as we go down the road. Certainly, in times of uncertainty, you want to make sure that you've got as much flexibility as is possible, and so we thought that was a prudent move. Okay. I'm just wondering, did it have anything to do with the goodwill impairment or potential for further impairments in it? Do you guys get a debt to capital restriction as well? There is no debt to capital restriction, Ben. Our covenant more relates to our net debt to the trailing 12-month pro forma adjusted EBITDA, and then there's an interest coverage covenant as well. The goodwill impairment really has no impact. Okay. That's helpful. Thanks, everybody. Thank you. The following question is from Patrick Kenny of National Bank Financial. Please go ahead. Yeah. Good morning, guys. To Don, congratulations once again. Thanks, Pat. Just back on the new debt covenant there, it seems to be a fair bit of cushion here relative to where you're at today at 3.2 times, and I guess where you might peak out over the next year or so. Just wondering if you could comment on how much of that buffer relates to the potential volatility within your base business versus, say, boosting dry powder for new growth opportunities or acquisitions. Thanks. Yeah, like I said, it was really an abundance-of-caution move on our part. Certainly, we have signaled that we are going to be extremely disciplined when it comes to M&A activity, restricting anything to infrastructure opportunities that may come about. I would suggest that anything material, we probably would have to think in terms of additional financing regardless. The covenant relief was mostly just, again, as a hopefully not necessary buffer against continued uncertainty as we move through 2016. Certainly, with respect to the volatility underpinning our base businesses, and that, in fact, in my prepared commentary, I did highlight we do continue to see pressures, particularly in the first half of this year. If you just think in terms of crude oil pricing averaging, what, $42-$43 in the fourth quarter, we're averaging $32-$33 in the first quarter. Your rig count has dropped both in Canada and the U.S. The business hasn't gotten any easier. We don't expect material degradation in any of our cash flow streams. Certainly as we continue to bring on our infrastructure, we'll see that cash flow grow and the stability of that cash flow grow as we move through the back half of this year and into 2017. The covenant relief is really just, like I said, it was available to us, and we decided that as an abundance of caution measure, it was something prudent to do. Okay. With respect to the dividend being tapped up here in conjunction with the covenants being relaxed, maybe can you talk about just the strategy of smoothing out the dividend growth over time versus, say, hoarding as much cash as possible until some of these larger projects are online and then perhaps doing a larger increase at that time? Thanks. Yeah. We have a policy of addressing the dividend on an annual basis. The CAD 0.01 or the 3% increase in our dividend is not material in terms of the overall cash outlay of supporting the dividend. From the perspective of liquidity and balance sheet resiliency, it's really a non-event. It was more important for us just to signal to the market that we remain very confident in the stability of our cash flow stream and the ability to support and sustain the distribution. It's something that, as I've said in previous meetings, if we then can look back five years from today and say, look at, regardless of commodity price cycles, regardless of the fact that this is a cyclical business, we do manage our business and run it in such a manner that we can promise and sustain a policy of consistent and regular dividend increases throughout commodity price cycles. We thought it was an important signal to the market and to our shareholders that we have a very high level of confidence in the stability of our cash flow streams. Okay. Thanks, Stuart. Maybe just lastly for Don. Yeah, it looks like the fourth quarter spend came in CAD 45 million-CAD 50 million below previous CapEx guidance. Just wondering if you can maybe quantify the delta in terms of how much of that was just timing of spend that should show up here in early 2016 versus capital efficiencies, and whether or not you expect those efficiencies to continue through 2016. Yeah. I'd say, it's probably more related to timing than capital efficiencies if you're looking on a percentage basis. In reality, we are experiencing, like Stuart mentioned, both increases in quality, increases in timing. We had a great winter, so we see savings continuing through. We had some savings in 2015, and we see that continuing in 2016. We have had a couple of projects now that we're forecasting to be under budget from what we originally had targeted. We are seeing those savings, Pat. Okay, thanks, guys. I'll jump back in the queue. Thanks, Pat. Thank you. The following question is from Andrew Kuske of Credit Suisse. Please go ahead. Thank you. Good morning. Can you give us some commentary and then some color just on your outlook on the propane market? Because clearly with a lot of liquids rich production, there's an abundance of propane hitting the market, and you're clearly taking advantage and moving some of those volumes. Could you give us maybe a sense of how big that opportunity is for you and then maybe quantify it a bit? Without getting too specific, Andrew, I'd suggest that certainly as we've moved into 2016, we don't see a material change with respect to that business over what we had experienced in 2015. As you know, an abundance of supply in the marketplace and its impact in terms of relatively low propane prices, particularly as a percentage of crude oil, we're almost indifferent to that because we are essentially a fixed-price provider of logistical solutions, both on the wholesale side as well as on the industrial side. As I mentioned in my prepared comments, we do look forward to dissipation of the El Niño event, which is typically followed by more normal weather patterns, and that will have, hopefully, a positive impact across the North American propane space as we move into the winter season in 2016. From a more macro perspective, we are starting to see a fair bit of volume moving offshore. We characterize this as being sort of the shortest long market we've ever seen. We would expect that the logistics and marketing opportunities from our wholesale group, utilizing a very large fleet of railcars and the talent of the men and women that are in that group should provide us with opportunities as we move through 2016. Like I said, we don't see a material change from performance in 2015. Maybe just a follow-up to that, given your asset positioning, how do you see yourselves versus your competition in that space? Because you've got a unique set of assets from a logistical standpoint. How do you think you stack up versus some of the competitors? We are a fairly large provider of logistical solutions within that space. I think we are probably the largest port for propane in Canada, between our industrial and our wholesale divisions. The assets that we employ include a series of relatively small rail and truckout facilities across the northern tier U.S., as well as the aforementioned railcar fleet, and strategically positioned NGL, LPG marketers across North America. We don't have large-scale storage that we can utilize, but we do have contractual relationships with storage operators across North America. I think we are just in a position to exploit pretty strong market knowledge and pretty strong market positioning, as well as a logistical fleet that's capable of moving large-scale volumes from markets where it's particularly long to markets where that propane is needed. Okay. That's helpful. If I may, just one additional question. In some of the business lines, like environmental services and also trucking, clearly there are challenging market conditions right now, but are you gaining market share relative to others? There's a lot of mom-and-pop businesses in those worlds. Do you feel you're gaining some market share at the expense of others? Yeah. Overall markets have been shrinking, and so, on a relative basis, I'd say that we have been successful in terms of gaining market share. We are starting to see situations now where competitors are falling by the wayside, and we're able to step in and take over with respect to specific hauls on the truck transportation side as an example. We're also seeing in the environmental services side now, companies that are going out for bid being as concerned almost with the service company's ability to complete a project as they are with respect to pricing. Although, as I mentioned in my prepared remarks, pricing pressures remain strong within both of those segments, we would expect that as we move through 2016, particularly through the first half of 2016, where we do expect to see the continued low commodity prices and continued low rig utilization, that we will gain market share through attrition as opposed to through acquisition. Okay. That's great. Thank you. Thank you. Thank you. The following question is from Robert Kwan of RBC Capital Markets. Please go ahead. Morning. Morning. First off, best wishes, Don, in retirement. Thanks, Robert. You're welcome. If I can start with rail out of Hardisty, I'm just wondering if there are any conversations that maybe have accelerated given the growing profile of oil sands production and the recent delay in the Line 3 replacement project. Any discussions that we have been entering into and continuing on would, of course, be confidential. I think though from a macro perspective, what I can say, Robert, is that's probably a bit of a longer-term outlook, or maybe not even longer term, maybe medium term. Our point of view has always been that sort of by mid-2017, we're going to start to see pressures downstream of Hardisty with respect to take away capacity. We have the capability today of moving 120,000 barrels a day out of that facility with relatively short lead times. Certainly less than a year, we could be in a position to double that capacity or even more so. I think people right now are looking more at making sure that they are situated to survive in a very, very low commodity price environment, particularly as a Western Canadian producer with differentials where they are positioning themselves from that perspective. We'll get into more of the logistics, sort of post-2017 discussions as we move perhaps into the back half of this year. Got it. How aggressive do you want to be around that business with respect to, as you think about where the growing production volumes are coming from, some of them will be coming directly into Hardisty, which positions you really well. Mm-hmm. A number of those volumes will start or will flow initially into Edmonton, where there are other competing rail options. How aggressive do you want to be on those returns to secure the volumes? Obviously you have the benefits of driving volume through Hardisty and then through your pipeline connection into the rail terminal. Yeah. I don't think we would change our point of view with respect to the risk profile that we'd be prepared to take on for any infrastructure investment, and we think that we're particularly well-suited and well-situated at Hardisty. You are correct, a lot of volumes are going to go first to Edmonton, and they have the capability of getting in a rail car there as well. Hardisty, every single grade of crude oil that's produced in Western Canada shows up every single day. From a market optionality perspective and a long-term sort of viability perspective, we continue to think that that's still the best place to have a unit train rail facility. If we are correct in seeing another 1 million barrels a day of fluid coming out of the WCSB, particularly out of the oil sands over the next four or five years, I think there's going to be ample opportunity for rail, both out of Edmonton and Hardisty, which I think will both remain very key hubs. Great. Just turning to the 2016 capital. Given the flexibility you have, if the business environment doesn't improve from where we are right now, do you anticipate spending anything material above that CAD 200 million? The CAD 200 million represents the projects that we have currently contracted and are committed to. I've stated previously that we continue to have constructive dialogue with customers with respect to their infrastructure needs beyond what we have announced. To the extent that we would be announcing additional projects, the expenditure for those projects would be commensurate with the signing of additional contracts, and would likely, through the balance of 2016, involve civil construction activities as well as the ordering of long lead time items. The CAD 200 million we think is relatively well locked in. Any expenditures over top of that would be not tremendously material, would be my point of view. Got it. If I can just ask one last question, coming back to the credit covenant amendment, and I know, Stu, you've talked about it being out of the abundance of caution. I guess I'm just wondering, to close the loop on one last aspect that could be a little bit more offensive in nature, have you considered buying back some of the public bonds? Is that something that could be done with the ability to borrow a little bit more here? Robert, we've thought about that. There may be a time when the no-call ends, I think in July of 2016, that we'd look at doing something, whether extending it out or refinancing it. Right now, that's not really a priority for us. It's not the reason we went to. I don't think that we're going to borrow on our revolver to pay off notes. That's not a strategy we're employing. I would further that just by saying, one of the abundance of caution thought processes we have is that this is still an uncertain world, and certainly when you are in a period of uncertainty, you want to maintain as much flexibility as you can. From our perspective, liquidity is certainly a key aspect of that flexibility. Understood. Thank you very much. All right. Thank you. Thank you. The following question is from Steven Paget of FirstEnergy. Please go ahead. Thank you. Good morning, and well done on your cost reductions, and best wishes to Don. Thank you. Thanks, Stu. It appears you've increased your depreciation rate considerably. I don't know if I'm right or not, but if I am, could you please comment on the drivers behind this decision? Yeah. I think more the amortization, I think, increased, Steven, on the intangible assets. We took a change in estimate on those and wrote off, accelerated some of the amortization around some of our customer relationships down in the U.S. that were booked as part of the acquisition a few years ago of Omni Energy Services. I think that's probably what's driving that. That's a very detailed and welcome answer. Thank you, Don. Overall, given all your puts and takes on the segments, would you say that your outlook for 2016 EBITDA is flat to 2015's adjusted EBITDA of CAD 390 million? Yeah, I think certainly when we do our internal forecasting, we see puts and takes. As I'd mentioned, we may see continued pressure in our ES and TT segments, probably more so in ES than TT. As we move through 2016, we'll see what the market conditions will allow us to do. The weakness in some of those areas will be offset, at least very materially, in respect of the continued growth that we'll have from our terminals business. Without giving specific guidance, I would say that our expectation overall is that 2016 is going to be approximately the same kind of year as 2015 was, both from a macro perspective as well as from our perspective in terms of navigating through what continues to be fairly stormy waters. Thank you, Stu. We might say that trucks are going to keep on trucking. Finally, how much of the Canadian propane market by volume is served by Gibson or Canwest, and the other major propane provider whose name will not be said? We think in Western Canada, we're roughly equal with the largest propane company, Superior. We have non-material assets and operations east of the Manitoba border. If we divide Western Canada and Eastern Canada into two equal buckets, we would probably be 40% of Western Canada, and that would make us about 20% of the Canadian marketplace on an industrial basis. We do move and market a tremendous amount of Western Canadian supply, primarily to U.S. retailers as well. Like I'd mentioned on the call, we are probably the largest port for propane in Canada. We also manage supply out of Bellevue and out of Conway and other key supply points in North America. The long answer, Steven, to answer a question that I don't really know the answer to. How's that? It's great. Thank you. Thank you, everyone. Those are my questions. Okay, thanks. Thank you. The following question is from Ashok Bhuta of Platts. Please go ahead. Hi, good morning. I just wanted to seek your opinion on two things. Could you just walk me through your crude by rail business as it is now? You did mention about the capacity of 120, but what is the current load that you're carrying? Or Q4? We specifically don't give a lot of granular guidance with respect to that, out of respect to the shippers that do ship crude by rail out of our Hardisty unit train facility. What I can tell you is that the facility is 100% contracted with take-or-pay capacity. We are being paid as if 100% of that capacity was being utilized. From a macro perspective, I don't think it's any surprise to anybody that crude by rail, particularly out of Western Canada, is challenged by low commodity prices and wide differentials in the relative cost of moving a barrel by rail as opposed to moving a barrel by pipe. We certainly are not moving 100% of the capacity that we have through that facility. Our other capability from a crude by rail perspective includes very large manifest rail loading capacities at our large facility at Edmonton, as well as our smaller facilities, Sexsmith, Rimbey, et cetera. I think, our volume performance there is relatively in line with other crude by rail service providers. It has certainly been diminished from the 2014 timeframe when we had fairly large crude pricing differentials and higher commodity prices. Crude by rail today in Western Canada is challenged, but I'm not in a position to give you specific numbers as to what we are shipping. Okay, that's all right. Stu, your partner on this, the USD Group, it took a back seat with the application for the expansion. Why was that done? I think the USD Partners just are trying to make sure that we are shovel-ready if and when the call comes. They wanted to proceed through some of the regulatory issues that we need to clear as we do move towards hopefully what, at some point in the future, will be an expansion decision. They own and operate the unit train loading facility itself. We own and operate all of the infrastructure that connects our terminal to the unit train loading facility. Those are two separate work streams and separate permitting processes as we go forward. I think our partner was just trying to make sure that they were shovel-ready if and when the call comes. Okay. Another quick question. With the low WCS prices, it's just extremely low. The expectation was that producers would go in for more deeper cuts. That really hasn't happened across the board. Do you anticipate at all a spike in storage demand? Well, I think the consternation across the energy space with respect to storage levels is very real, and that's not a Western Canadian phenomenon necessarily. That's downstream of Western Canada, and literally throughout the world. We haven't seen a lot of stress on storage capacities within Western Canada, as most of the storage that we employ at Hardisty, as an example, is working stock storage. The desire is to get your barrels downstream of Edmonton and Hardisty to supply points where you can more readily take advantage of contango in the marketplace if that's what you want to do, and/or make sure that you've got ready access to markets when you find a market that you want to sell into. I think what we'll see is continued pressure on storage at Cushing, the U.S. Gulf Coast. We are starting to see builds with respect to floating storage offshore, that sort of thing. From our perspective, particularly, the storage we build is long-term contracted working stock storage, and so we haven't seen any particular pressures there. Okay. Thank you very much. Thank you. Thank you. Once again, please press star one at this time if you have a question. The following question is from Dan Healing of Calgary Herald. Please go ahead. Good morning. Good morning. I had two questions. First of all, when you're talking about expanding the Hardisty rail terminal next year, what would some of the factors be that would lead to that decision? I don't want to portray that as being a decision that's been made. My answer there was speculative in nature. I said that we probably wouldn't see the demand for expansion until next year. Some of the factors that would underpin that would be the same factors that underpinned our decision to move forward in the first place, and that would be customer demand. When we're building large-scale infrastructure like the infrastructure that would support an expansion of the unit train facility, we typically underpin at least the majority of the demand with long-term contracts that will allow us to ensure that we get the return that we expect from that investment over an appropriate time horizon. We'll wait for our customers to ask for it, and when they are in a position when they need that asset and do ask for it, we're certainly in a position to move forward. Oh, okay. If I could reword it a bit, what do you think would happen before your customers ask for that sort of expansion? Well, I think 2 things probably. Number 1, we are going to see continued volume growing in the WCSB. That's almost guaranteed as these long-lived and long-dated oil sands projects continue to come on stream. As I said, that will manifest itself in terms of congestion from pipeline capacity coming out of Western Canada. That's a given the difficulty we are having with pipeline expansion projects. We will see demand driven in part by just the need and necessity to continue to move barrels out of Western Canada, but that's probably going to be augmented to the extent that we do see, hopefully within that timeframe that I've talked about, higher commodity prices, which allow barrels to move by rail out of Western Canada on an economic basis. Because certainly at $34 with a $16 WCS to WTI differential, you're really talking about a $16 U.S. barrel coming out of Western Canada today, and you're the better part of $10 a barrel to move crude by rail to the U.S. Gulf Coast. That doesn't leave a lot for the producer. Two things. Number one, continued growth, which is almost certain, and then a return to more normal commodity prices. Okay, thanks. My other question was a numbers question. You said that Gibson has reduced staff by 15% since last year. The AIF last year said that you had around 2,900 staff, so 15% is somewhere between 400 and 500. Is that a good number to use? And also, is that all permanent staff, or would that include contractors? That would be staff that we would count as being employees. Permanent in nature, as I'd said in response to the earlier question, first of all, that's a pretty accurate number. Secondly, it would involve a combination of hourly staff that we would employ in our field level operations throughout North America, pretty evenly split between the U.S. and Canada, as well as certain select reductions in G&A and overhead. Okay. Thank you very much. Thank you. Thank you. There are no further questions registered at this time. I'd like to turn the meeting back over to Ms. Price. Thanks again for your interest in Gibson. As mentioned earlier, Cam and I are available after the call if there are more questions. Have a good day, everyone. Thank you. The conference has now ended. Please disconnect your lines at this time. We thank you for your participation.