Gibson Energy Inc. (GEI) Earnings Call Transcript & Summary

Good morning, everyone. Welcome to the Gibson Energy Second Quarter 2026 Conference Call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Beth Pollock, Vice President, Capital Markets and Corporate Development. Ms. Pollock, please go ahead.

Thank you, and good morning, everyone. We appreciate you joining us today to discuss Gibson's second quarter 2026 results. Joining me are Curtis Philippon, our President and Chief Executive Officer; and Riley Hicks, our Senior Vice President and Chief Financial Officer. Other members of our senior leadership team are also with us and will be available during the Q&A should any additional questions come up. Before we begin, I'd like to remind listeners that today's call will include references to non-GAAP financial measures and forward-looking information, which are subject to certain assumptions and risks. Additional information, including reconciliations of these measures and related disclosures are available in our investor presentation and our continuous disclosure documents on SEDAR+ as well as on our website. With that, Curtis, over to you.

Thank you, Beth, and good morning, everyone. We appreciate you joining us today as we review Gibson's second quarter 2026 results. This was a significant quarter for Gibson, and I would like to begin by recognizing our team. Their hard work, disciplined execution and commitment made these results possible. Most importantly, we achieved a notable safety milestone in the quarter, surpassing 1 full year without a recordable injury, inclusive of both employees and contractors. This milestone reflects the strength of our safety culture, the experience and commitment of our teams, the quality of our program and the relentless focus on continuous improvement across the organization. Turning to the quarter, I'd like to start with the macro backdrop because it has changed meaningfully over the past several months. Looking at the environment today, I see a more constructive backdrop for North American energy infrastructure than even a quarter ago. While this created opportunities which benefited our second quarter results, what gives me the greatest confidence is the long-term opportunity it creates for Gibson. The strategic importance of secure, reliable North American energy has never been more clear. Gibson is well positioned to support our customers with our infrastructure strategically located at critical hubs across the global energy supply chain. In Canada, recent market access announcements and pipeline developments have created positive momentum for the energy infrastructure sector. This reinforces our long-term growth strategy and has already accelerated commercial discussions with our customers. Historically, every new barrel of pipeline egress has required approximately 4 barrels of storage capacity. Over the past decade, Gibson has developed a significant share of the new merchant crude oil storage in Canada. Today, approximately half of TMX heavy crude volumes move through our Edmonton terminal, underscoring the scale and relevance of our platform. With strategic terminals and land positions in Hardisty, Edmonton and Bruderheim, along with our customer relationships and operating expertise, Gibson is very well positioned to support our customers' evolving infrastructure needs. The broader market backdrop is also shaping our U.S. business, where geopolitical uncertainty has continued to drive commodity volatility, elevated freight rates, shifting global trade flows and constrained vessel availability, all of which have had temporary impacts on gateway volumes. Following a softer first quarter, market conditions strengthened meaningfully in the second quarter, and we have now set year-to-date volume records at the terminal. Looking ahead, we are monitoring freight rates, vessel availability and commodity volatility closely. Our commercial team is continuing to work with customers to ensure we can meet their needs and capture opportunities together as market conditions remain volatile. Against this backdrop, Gibson continued to advance our growth strategy and delivered a strong second quarter. We achieved a new record for infrastructure adjusted EBITDA, had our strongest marketing quarter since the second quarter of 2024 and nearly set a new record for overall adjusted EBITDA. The marketing performance was notable in the quarter. The team did an outstanding job capitalizing on opportunities created by crude volatility. Also, the investments we made last year to expand our refined products capability and diversify our customer base are also delivering results in today's stronger crack spread environment. Year-to-date marketing has contributed $18 million of adjusted EBITDA, and it is trending towards the upper end of the $40 million full year range we provided at our Investor Day. Turning to infrastructure growth. We closed our acquisition of the Chauvin Pipeline system on May 1. This pipeline extends our core position at Hardisty and adds stable contracted cash flows underpinned by long-term agreements with Teine Energy. Since closing, we have started work on the Hardisty Connection project, which will directly connect the Chauvin assets into our core Hardisty terminal, providing customers with improved access to market. We continue to expect this project to be completed in the first half of 2027. We are also advancing the next phase of growth at Chauvin. Engineering work is underway on the planned expansion project to increase effective capacity by 50% from 30,000 barrels per day to 45,000 barrels per day, and we remain on track towards a final investment decision by year-end. In the U.S., the Wink-to-Gateway integration project is on track to be placed in service by the end of the third quarter. The first phase of the pipeline twinning work is complete, enhancing our ability to move supply concurrently from the Eagle Ford and Permian Basins into Gateway. These growth projects enhance our connectivity, improve network efficiency and support additional capital deployment around our core assets with the objective of delivering sustainable long-term value and attractive per share growth for shareholders. With that, I've covered our safety milestone, the macro environment, marketing performance and the continued execution of our infrastructure growth strategy. I'll now turn the call over to Riley. He'll walk you through our second quarter financial results and balance sheet, which continue to provide financial strength and flexibility to support the strategy I've outlined today.

Thank you, Curtis. As Curtis highlighted, we delivered a strong second quarter, supported by the continued strength of our infrastructure business, improved marketing performance and disciplined execution across the organization. This quarter demonstrated the strength of our infrastructure business and the benefits of the strategy that we continue to execute. Our infrastructure business delivered a record $169 million of adjusted EBITDA in the second quarter, a $17 million increase from the second quarter of 2025 and $9 million higher than the previous record set in the fourth quarter of 2025. What stands out to me isn't simply the record EBITDA, but where it came from. We saw stronger utilization across the network, contribution from our newly acquired Chauvin asset and the continued benefits from optimization initiatives, reflected in an increase of approximately 8 million barrels of throughput across our portfolio as compared to the same period last year. Together, these results reinforce our confidence in the quality of our infrastructure business, supported by increasingly resilient cash flows and a stronger long-term growth profile. In addition to the record infrastructure results, what impressed me this quarter was how quickly the marketing team responded when opportunities emerged. Their execution helped deliver adjusted EBITDA of $15 million in the second quarter compared with $8 million in the second quarter of 2025. More important than the earnings themselves is what they tell us about the business. These results demonstrate that the investments that we've made in people, technology and commercial capabilities are translating into better execution. This quarter's performance was largely driven by our refined products business with strong crack spreads driving increased margins on our distillate sales, offset by slightly weaker-than-expected asphalt demand. From a capital investment standpoint, operational enhancements that were placed into service during our 2025 turnaround enhanced our product diversity while supporting stronger commercial execution and improved margins on our asphalt sales. Our investments in technology have helped us streamline processes, supporting faster real-time decision-making, enabling our people to respond quickly as opportunities arise. From a cost perspective, the second quarter G&A expense of $16 million was below the previous guidance of $17 million to $18 million, benefiting from the implementation of certain onetime cost savings initiatives. I am very encouraged by the progress we're making to structurally improve our cost base. Our organizational restructuring and broader efficiency initiatives are simplifying our business, improving decision-making and creating operating leverage that will support long-term earnings growth. We continue to expect these initiatives to deliver approximately $10 million of sustainable annualized savings in 2027. Perhaps the most important takeaway from our quarterly results is the strength of our overall performance. On a consolidated basis, adjusted EBITDA of $169 million was in line with our previous quarterly record and represented a substantial increase of $22 million from the same period last year, underscoring the momentum we are seeing across our business. Distributable cash flow of $96 million in the quarter, an increase of $15 million compared to the second quarter of 2025 was supported by record infrastructure EBITDA and partially offset by higher financing costs and current income taxes. These strong financial results reflect the disciplined approach to capital allocation and balance sheet management that we've maintained over many years. This focus was recently reinforced by the reaffirmation of our investment-grade credit ratings and stable outlooks by both DBRS and S&P. This reflects the strength of our financial profile and the confidence in our long-term strategy. Maintaining investment-grade credit metrics is a core financial principle as it ensures we have the financial flexibility and access to markets we need to pursue high-quality infrastructure growth opportunities. Looking ahead, we expect leverage to return to our long-term target range of 3 to 3.5x in early 2027. At quarter end, our reported net debt to adjusted EBITDA ratio was 4.2x, while infrastructure leverage was 4.4x. To put this in perspective, when considering a full 12 months of contribution from the Chauvin acquisition, our overall leverage was 3.9x and our infrastructure-only leverage was 4.1x. These metrics are within rating agency thresholds, and we are well capitalized and positioned to meet our customers' growing needs. Looking at our dividend payout ratio, we exited the quarter with a sustainable payout ratio of 88%. This was temporarily elevated due to the impact of the shares issued to fund our Chauvin acquisition not yet being offset by a full 12 months of trailing cash flow contribution. On an infrastructure-only basis, our payout ratio was 83%, well below our target of 100%. This reinforces our confidence in both our financial position and our long-term dividend philosophy. Since our last call, we further strengthened our financial position and enhanced our financial flexibility by extending our $1 billion revolving credit facility to June 2031. We also issued $400 million of senior unsecured notes, improving our liquidity position. Collectively, these actions reinforce the strength of Gibson's balance sheet. We were able to complete a strategic acquisition, refinance our debt on attractive terms and continue to support our dividend, all while preserving the financial flexibility and investment-grade credit profile that will allow us to fund our long-term growth plans. With that, I'll turn the call back to Curtis to bring it all together.

Thank you, Riley. To close, we are pleased with our performance during the second quarter. And year-to-date, we remain on track with our plan. Our team's ability to execute in a dynamic market environment is impressive. We delivered record infrastructure results, capitalized on opportunities in marketing, successfully closed the Chauvin acquisition, advanced key infrastructure growth projects and maintained our industry-leading safety performance. The progress we have made this year reinforces our confidence in the long-term strategy and the financial objectives we outlined at Investor Day. We remain focused on executing that plan and creating sustainable value for our shareholders. I'd like to thank the Gibson team for their continued commitment to safe and reliable operations. And I'd also like to thank our shareholders for their continued support. Before I wrap up, maybe one last shout out. 2 weekends ago, there was a tour of Alberta for cancer that Gibson was proud to be a Northern Light sponsor for that event. And it's a great event in Alberta that raised over $12.5 million for cancer research. It was quite an impressive event. Gibson was proud to be one of the top 5 fundraising groups in that event. We had over 45 riders participating. Riley and myself included, we're suffering along with everybody. And we raised -- the Gibson team alone raised over $410,000, I believe the highest amount of fundraising raise per rider for any team in the ride. It's just a spectacular event, a great success story for Cancer Research and just quite impressive to see what the team did. So thank you to everybody who participated. With that, I'll turn the call back to the operator to open the line for questions.

Thank you, Curtis. [Operator Instructions] Our first question comes from Aaron MacNeil with TD Cowen.

Curtis, you mentioned a meaningful change in the macro backdrop in your prepared remarks and highlighted the potential for new tankage. New tanks were among the handful of different growth opportunities that you outlined at the Investor Day. Has incremental tankage become the highest likelihood growth opportunity in your view? Or are you also seeing opportunities across those sort of other buckets like producer partnerships, pipelines, DRU expansions as well as optimization? And has your view changed in terms of your goal to deploy $1 billion of growth capital over the next 5 years? Or does recent momentum just improve the visibility for you to reach that goal?

Thanks, Aaron. When I look across that -- those buckets we outlined of over $1 billion of growth capital that we see in front of us, the tank side, obviously, there's some direct implications for more pipeline egress requiring additional tankage. That looks very promising, and we're not quite ready to predict that we're going to be increasing what we projected in that page, but that looks much more probable and feeling very confident on that. But I'd also note that just in general, excellent egress out of the basin drives all types of growth. And as our customers grow and activity increases, it really enhances every one of these buckets with perhaps the exception of the DRU. But on all the other buckets, pipelines, in particular, there's all kinds of opportunities as producers are increasing their production that they need additional infrastructure solutions to get their barrels to market and tanks are part of that. But pipes and producer partnerships and various optimization projects we can do, all will be necessary to feed the type of production growth you're going to see out of Western Canada. And as I said, the one that perhaps takes a bit of a backseat is the DRU side of things. And I think we've seen discussions quiet on that until you see some more clarity on some of these pipeline egress options.

That's a great segue into my next question. And this one is a bit of an oddball question. So apologies if it doesn't apply, but access to condensate is emerging as a potential impediment to crude oil production growth in Canada. Obviously, the DRU prevents condensate from being exported. But have you looked at how you might participate in helping facilitate incremental condensate imports? And if so, what would that look like?

I think you hit on the one that's very much an actionable thing for us. The DRU can play a role in keeping condensate in Alberta, and there's a role for that to sort of play an increasing role over the next number of years. Beyond that, I wouldn't comment quite yet. It's -- I made one comment in my notes in the script that we've seen an acceleration of commercial discussions with customers. And whether it's condensate or additional crude infrastructure requirements, we've seen a lot more interest from our customers on all these fronts.

Our next call comes from Robert Hope with Scotiabank.

Maybe moving south of the border or South Texas, so how have moving pricing diffs, tanker rates as well as the availability of ships impacted contracting discussions at South Texas? Is it -- are you seeing strong demand there, but having your customers actually sign longer-term contracts is a bit more challenging just given the dynamics there? Can you maybe just walk us through kind of the near and medium-term dynamics?

I think that's a good shout out. We're -- the crude export market is a volatile place right now. I don't think it's a surprise for anybody. And there's all these factors are playing into, all of our customers seeing their supply chains regularly disrupted and plans they thought they had one day are changing the next. And so in this volatile market, we've been more focused on the near term with our customers. It's difficult for customers to be making long-term commitments and decisions in this type of volatile market. Where I've been really pleased with our team is that this sort of chaotic environment creates an opportunity for us to really grow some new relationships with customers. And we saw over the last quarter that we added 5 new customers on short-term opportunities into Gateway and actually delivered volume on to ships for those customers. That's a really big deal for us that we've probably -- in our history, there hasn't been much more than a dozen customers that have come through Gateway. And so to have 5 new customers, including some super majors experiencing Gateway and the team and the quality of that assets and being able to help them out as they're facing a jam in sort of this chaotic market is -- I think will pay dividends in time. But right now today, I think it's a fair comment to say that people are just seeing so much volatility that it's difficult for them to make long-term decisions in the near term.

All right. I appreciate that. And then maybe just as a follow-up to one of your prior answers. So in your prepared remarks, you mentioned that you are seeing accelerated commercial discussions for new infrastructure. Can we maybe -- or can I ask in what specific areas are you seeing the most incremental demand? And could we see some project announcements by year-end?

Yes. So as I just mentioned, I think we've seen good activity on all fronts with perhaps the DRU being the one in the back burner right now, but we've seen good discussions on all other types of projects with customers. The most likely thing you'll hear us talking about for an FID between now and the end of the year is the work around the Chauvin pipeline. Now we've got good expansion work that's being engineered right now, and we expect that we'll FID that before the end of the year. And we've also got a number of different projects that we're working on with customers to extend additional laterals off the Chauvin pipeline that we're working through some of that. But I think the one I'd watch for FID this year would be the expansion work.

Our next question comes from -- I'm sorry, our next question comes from Maurice Choy. Maurice is with RBC Capital Markets.

Maybe I want to continue our discussion into the capital allocation side of things. It sounds like there's a lot of opportunities, yet you are on a deleveraging journey, at least through to early 2027 when you get back into your debt-to-EBITDA range. If I take the assumption that many of these opportunities are coming at you faster now than before, any early thoughts as to how you reconfigure, how you allocate your distributable cash flows and how you raise funds?

Thanks, Mo. I think when we think about capital allocation, we're very comfortable with where our balance sheet is, and we're very comfortable with what our capital allocation priorities are. So I would say, there's no material change to how we approach funding our business. As we look out over the growth profile of the business, we think we can continue to fund it through distributable cash flow and a mix of debt and stay within our target leverage range. As these projects come to service and as market conditions change, we'll always evaluate other financing alternatives to see what makes the most sense for our shareholders. But as we stand today, there's no change to our capital allocation priorities.

And just finishing up on marketing. Clearly, the performance is better than you had expected when you provided guidance to us at the last conference call. Can you break down a little bit more as to what transpired? I know you mentioned topics about refined products and crack spreads in your prepared remarks. And whether or not you see some of these trends continuing and maybe even outperforming the new guidance that you gave us today about being upper end of the $40 million range?

I think the story of the quarter on marketing is really a refined product story. And you saw over the quarter that crack spreads just continued to be strong and get stronger to just some outstanding levels. And so that was sort of one part of the story. And then the second part of the story was really on what the mix was out of the Moose Jaw facility. We had a really nice success story over this quarter, and we expect that will continue in particular in next quarter on that sort of continued strong mix. We made some changes back at our turnaround last year and did some work with a customer -- with a couple of customers to expand our ability to provide some different products to them. And that's proved out to be a great move. And we're seeing strong demand out of those customers and also some improved margins out of being able to provide that product mix. And so that, combined with the improved crack spread market, really drove stronger than what we initially anticipated for the quarter, and I think you'll see that continue to progress into Q3.

Our next question comes from Sam Burwell with Jefferies.

You've alluded several times to the volatility in exports, which I think we can all understand. But just looking back a little bit, can you provide us just some kind of commentary as to how exports progressed from May to June and then into July? And then any expectations you could share for the rest of the quarter or at least as far out as you have any reasonable visibility?

It is a volatile market. So I'd love to be able to say I can tell you exactly what crude exports look like out of the U.S. for the remainder of the year, but it is definitely changing on a daily basis on what customers are doing with their crude, what vessels are available, what path vessels need to take around the world to get to markets. So all those things are playing into just what vessels are available coming in and that's having some volume impacts. We think Q3 looks similar to Q2 from a volume perspective, but that's what it is from a contracting perspective, and it's really up to our customers on whether the vessels arrive and we actually load those vessels. So our actual volumes are still to be determined, whether we're sort of above or below what we saw for Q2. But from a contracted and what we've got sort of locked in, we expect that we're going to be at a similar range to Q2 and Q3.

Okay, great. And then on the corporate expense, it's a small difference, but still like showing improvement, this is obviously a good thing. So is $16 million a quarter the right number to assume until we get to that sustained $10 million annualized savings in 2027? Or are we still thinking about the $17 million to $18 million of corporate drag per quarter?

Yes. Thanks, Sam. I think right now, we're still 17% to 18% per quarter for the rest of the year, and you'll see us continue to be laser-focused on trying to bring that down with savings initiatives. But I would point you back to the business and some of the investments we're making that are dragging on our G&A, we're seeing those returns within our business. And specifically, I'd point to the marketing group where we've spent quite a bit of money on technology to improve processes, and it's truly having an impact on the EBITDA in that sector. So despite G&A being higher, we are seeing the positive impacts throughout the business. And then we're going to continue to be laser-focused on bringing our costs down and driving that sustainable cost savings.