DBRS Morningstar Confirms Ratings of Gibson Energy Inc. at BBB (low) with Stable Trends

DBRS Limited (DBRS Morningstar) confirmed Gibson Energy Inc.'s (Gibson or the Company) Issuer Rating and Senior Unsecured Notes (Senior Notes) rating at BBB (low). Gibson's Junior Subordinated Debt rating is confirmed at BB. All trends are Stable. The ratings are supported by relatively stable and contracted cash flows from the Company’s infrastructure assets, primarily crude oil storage terminals and gathering pipelines, and a strong competitive position. Gibson’s ratings are constrained by earnings volatility in its marketing segment and the lack of geographic diversification.

DBRS Morningstar notes that Gibson's business risk profile remained unchanged in 2020 and its key credit metrics support the current rating. Despite the weak performance in the marketing segment, additional contracted storage terminals placed in service in 2019 and 2020 helped weather the adverse market conditions in 2020. The successive waves of the Coronavirus Disease (COVID-19) variants and the resulting lockdowns continue to impact demand for crude oil and refined products. Given the uncertain market conditions, oil producers have shifted their focus from production growth to cost containment and profitability. Consequently, new demand for oil storage infrastructure is likely to be muted in the near term. Demand for refined products has recovered somewhat, but is likely to remain weak relative to pre-pandemic levels due to the lingering uncertainty induced by the pandemic.

Gibson's infrastructure and marketing segments are expected to contribute approximately 80% and 20%, respectively, to 2021 EBITDA. The infrastructure segment is largely supported by long-term take-or-pay and fee-for-service contracts with no commodity price risk, but with some exposure to volumetric risk. The majority of Gibson's storage terminal customers are investment-grade counterparties, mostly large oil sands producers. Gibson's fee-for-service revenues have been historically stable, but lower production volumes could have a negative impact on revenue. Gibson’s marketing segment is exposed to volatility from oil price differentials and refined product margins.

The Company has a $200 million growth capital program for 2021, largely for contracted infrastructure assets. Liquidity risk is considered modest as the Company has adequate room in its $750 million sustainability-linked credit facility.

Gibson has limited geographic diversification as the majority of its cash flows are generated from assets in the Western Canadian Sedimentary Basin (WCSB), which entails basin-specific risks. Longer-term demand growth for storage terminals in the WCSB depends on increased production, which in turn depends on the resurgence in petroleum demand and the availability of additional pipeline egress options, namely the Trans Mountain Pipeline expansion expected in service at the end of 2022 and the Line 3 Replacement in Q4 2021.

DBRS Morningstar considers a positive rating action as unlikely given the uncertainty caused by the pandemic. Ratings could be downgraded due to rises in price and volume risks or if cash flow-to-debt weakens to below 15% and debt-to-capital exceeds 70%.

ESG CONSIDERATIONS
A description of how DBRS Morningstar considers ESG factors within the DBRS Morningstar analytical framework can be found in the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings at https://www.dbrsmorningstar.com/research/373262.

Notes:
All figures are in Canadian dollars unless otherwise noted.

The principal methodologies are Rating Companies in the Pipeline and Diversified Energy Industry (November 19, 2020, https://www.dbrsmorningstar.com/research/370267), DBRS Morningstar Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (November 2, 2020, https://www.dbrsmorningstar.com/research/369165) DBRS Morningstar Criteria: Rating Corporate Holding Companies and Parent/Subsidiary Rating Relationships (November 2, 2020, https://www.dbrsmorningstar.com/research/369167), and DBRS Morningstar Criteria: Guarantees and Other Forms of Support (January 14, 2021, https://www.dbrsmorningstar.com/research/372344), which can be found on dbrsmorningstar.com under Methodologies & Criteria. Other applicable methodologies include the DBRS Morningstar Criteria: Approach to Environmental, Social, and Governance Risk Factors in Credit Ratings (February 3, 2021, https://www.dbrsmorningstar.com/research/373262).

For more information regarding rating methodologies and Coronavirus Disease (COVID-19), please see the following DBRS Morningstar press release: https://www.dbrsmorningstar.com/research/357883.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at [email protected].]

The rated entity or its related entities did participate in the rating process for this rating action. DBRS Morningstar had access to the accounts and other relevant internal documents of the rated entity or its related entities in connection with this rating action.

Generally, the conditions that lead to the assignment of a Negative or Positive trend are resolved within a 12-month period. DBRS Morningstar trends and ratings are under regular surveillance.

For more information on this credit or on this industry, visit www.dbrsmorningstar.com or contact us at [email protected].

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