DBRS Morningstar Confirms Ratings of Gibson Energy Inc. at BBB (low) and BB 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). DBRS Morningstar also confirmed Gibson's Junior Subordinated Debt rating 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 stable in 2021, and its key credit metrics support the current ratings. The Company has demonstrated strong growth in infrastructure earnings over the past three years, despite the challenging market conditions, to offset the weaker performance in the marketing segment. Gibson placed the first phase of the 50,000 barrel per day diluent recovery unit in service in Q3 2021, which is likely to generate additional demand for storage capacity and rail access at Hardisty, Alberta. Higher oil prices are likely to support the need for storage terminals; however, narrow price differentials, higher inventory carrying costs, and tighter margins could hinder the marketing segment.

Gibson's infrastructure segment contributed a significant portion of the EBITDA for 2021. The infrastructure segment is supported by medium- to 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 revenue has 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.

Gibson has limited geographic diversification as the majority of its cash flow comes 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 a sustained increase in production, which will depend on growing demand for crude oil and petroleum products, and the availability of additional pipeline egress options.

The Company has a growth capital expenditure target of $150 million for 2022, which is focused on contracted infrastructure and energy transition investments, including renewable diesel. Gibson expects to fund its capital expenditures largely from operating cash flow. The Company’s liquidity is adequate, with sufficient room in its $750 million sustainability-linked credit facility.

A positive rating action can occur if the Company's business risk profile improves through stable operating cash flow that is supported largely by long-term take-or-pay contracts with investment-grade counterparties and Gibson continues to fund its growth and dividends prudently. Ratings could be pressured because of a rise in price and volume risks or if the cash flow-to-debt ratio weakens to below 15%.

ESG CONSIDERATIONS
There was no environmental, social, or governance factor or consideration with a significant or relevant impact on the credit ratings.

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 Midstream Energy Industry (November 3, 2021; https://www.dbrsmorningstar.com/research/387443) and DBRS Morningstar Criteria: Preferred Share and Hybrid Security Criteria for Corporate Issuers (October 21, 2021; https://www.dbrsmorningstar.com/research/386355), 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).

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].

This rating was initiated at the request of the rated entity.

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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