Gibson Energy Expands Liquids Infrastructure Platform with Acquisition of Texas Gulf Coast Crude Oil Export Facility for US$1.1 Billion – Energy News for the Canadian Oil & Gas Industry | EnergyNow.ca

All financial figures are in Canadian dollars unless otherwise noted

Transaction Highlights

• Enhances Gibson’s leading liquids-focused infrastructure business with on-strategy acquisition of high-quality export terminal at Ingleside, one of only two Texas Gulf Coast terminals with VLCC capabilities
• Strengthens cash flow with >95% of revenue under take-or-pay contracts with investment grade or high-quality counterparties who are existing customers of Gibson¹
• Expands Gibson’s footprint with connectivity to the world-class Permian basin and provides platform for future infrastructure growth with existing and new customers
• Delivers immediate mid-teens DCF per share accretion, while significantly increasing Gibson’s scale and diversity^2,6
• Aligns with Gibson’s key Financial Governing Principles and structured to maintain investment grade ratings and outlooks
• Maintains ESG profile by further reducing Gibson’s industry-leading carbon intensity³

CALGARY, Alberta, June 14, 2023 (GLOBE NEWSWIRE) — Gibson Energy Inc. (“Gibson” or the “Company”) (TSX: GEI) announced today it has entered into an agreement to acquire 100% of the membership interests of South Texas Gateway Terminal LLC (“STLLC”) for a total purchase price of US$1.1 billion in cash (the “Transaction”), subject to closing adjustments. Through the Transaction, Gibson acquires the South Texas Gateway Terminal (“STGT” or the “Terminal”) which is positioned as one of the most competitive liquids terminal and export facilities globally with direct pipeline connections to low-cost, long reserve-life resource supply, and very large crude carrier (“VLCC”) capabilities. The Transaction implies a multiple of less than 9x the projected forward Adjusted EBITDA and is immediately accretive, with DCF per share accretion in the mid-teens^4,5,6.

“Since establishing Gibson as a leading liquids-focused infrastructure company, we have been looking for an opportunity that is a strategic fit, while enhancing our scale and diversity,” said Steve Spaulding, President and Chief Executive Officer. “After much patience and discipline, I am excited to add the world-class South Texas Gateway Terminal to our infrastructure portfolio. This transaction amplifies our high-quality infrastructure revenues and bolsters the continued growth of our distributable cash flow per share. To add 1 mmbbl/d of export capacity and nearly 9 million barrels of terminals storage in a highly strategic location furthers our momentum in growing Gibson’s infrastructure footprint and provides a platform for future growth with existing and new customers.”

South Texas Gateway Terminal

STGT is a newly built, high-quality crude oil export facility, operating a deep-water, open access marine terminal in Ingleside, Texas at the mouth of the Corpus Christi Bay. The Terminal was officially placed in-service and loaded its first vessel in July 2020. In March 2021, STGT completed the final construction phase of incremental storage facilities bringing the total terminalling capacity to 8.6 million barrels of crude oil across 20 tanks. The Terminal is connected to the Permian and Eagle Ford basins through multiple, newly-built pipelines and is strategically positioned to connect these basins to global exports. With two deep-water docks that enable the simultaneous loading of two VLCCs and a permitted throughput capacity of 1 mmbbl/d, STGT is the second largest U.S. crude oil export terminal by capacity and accounted for approximately 12% of the United States’ total crude oil exports in 2023 year-to-date⁷.

The Terminal achieved record volumes of over 670,000 bbl/d of oil in March 2023. Its advantaged location and operational efficiencies, combined with its pipeline-connections to leading North American resources plays, position STGT for continued growth through optimization of existing capacity, and increasing throughput volume. As U.S. crude oil exports grow, driven by production growth from the low-cost, resource-rich Permian basin, Gibson anticipates the potential for future expansions at the Terminal.

On-Strategy Acquisition of Liquids-Focused Infrastructure Business

Through the Transaction, Gibson expands and enhances its North American terminal footprint by establishing a third liquids hub underpinned by over 95% take-or-pay        revenue⁸. The take-or-pay counterparties are existing customers of Gibson’s current North American businesses and approximately 85% have investment grade ratings, with the remaining customers being subsidiaries of large, high-quality global companies.

After giving effect to the Transaction, Gibson’s proportion of segment profit from infrastructure is expected to increase to approximately 85%, and its proportion of infrastructure revenue from take-or-pay contracts is expected to increase to approximately 80%^9,10.

Fully Financed Transaction, Structured to Maintain Investment Grade Ratings

Gibson has fully committed bridge financing facilities totaling US$1.1 billion in place with Royal Bank of Canada, BMO Capital Markets, and JPMorgan Chase Bank N.A., Toronto Branch (collectively the “Bridge Lenders”). Permanent financing of the Transaction is expected to be achieved through a $350 million bought deal offering of subscription receipts (the “Equity Offering”) and subsequent offerings of senior unsecured medium-term notes and hybrid debt securities of various tenors (the “Debt Offerings”).

Concurrently, the Company will also be launching an amendment to upsize its sustainability-linked revolving credit facility from $750 million to $1.0 billion and has secured commitments from the Bridge Lenders.

The financing of the Transaction, including the Equity Offering and contemplated Debt Offerings, has been structured to maintain the investment grade ratings and outlooks assigned to Gibson by DBRS and S&P.

After giving effect to the Transaction, the Equity Offering and the Debt Offerings, Gibson expects its Net Debt to Adjusted EBITDA ratio to be approximately 3.2x, within the targeted 3.0x to 3.5x range stated in Gibson’s Financial Governing Principles¹¹.

Closing Expected in the Third Quarter of 2023

Closing of the Transaction is expected to occur in the third quarter of 2023, subject to satisfaction of customary closing conditions, including the expiration or termination of the waiting period under the U.S. Hart-Scott-Rodino Antitrust Improvements Act.

J.P. Morgan Securities Canada is acting as exclusive financial advisor, and Latham and Watkins LLP and Bennett Jones LLP as legal advisors, with respect to the Transaction.

Bought Deal Equity Offering

Pursuant to the Equity Offering, Gibson has entered into an agreement with a syndicate of underwriters (the “Underwriters”) led by BMO Capital Markets and RBC Capital Markets as joint bookrunners, for the issuance of 17,400,000 subscription receipts (the “Subscription Receipts”) on a bought deal basis, at an issue price of $ 20.15 per Subscription Receipt (the “Offering Price”) for total gross proceeds of approximately $350 million. Gibson has also granted the Underwriters an option, exercisable, in whole or in part, at any time up to the earlier of 30 days following the closing of the Equity Offering and the occurrence of certain termination events with respect to the Subscription Receipts, to purchase up to an additional 15% of the number of Subscription Receipts purchased by the Underwriters under the Equity Offering at the Offering Price to cover over-allotments, if any, and for market stabilization purposes (the “Over-Allotment Option”).

The gross proceeds from the Equity Offering, less the portion of the underwriters’ fee that is payable on the closing of the Equity Offering, will be held in escrow and are intended to be used by Gibson to fund a portion of the purchase price for the Transaction.

Each Subscription Receipt will entitle the holder to receive, without payment of additional consideration and without further action, one common share of Gibson (a “Common Share”) upon the closing of the Transaction.

If the Transaction closes, a dividend equivalent payment will be made to holders of Subscription Receipts of an amount per Subscription Receipt, as applicable, that is equal to the amount per Common Share of any cash dividends declared by the board of directors of Gibson on the Common Shares to holders of record on a date during the period from, and including, the closing date of the Equity Offering to, but excluding, the closing date of the Transaction, net of any applicable withholding taxes (the “Dividend Equivalent Payment”). The Dividend Equivalent Payment will be made on the later of the closing date of the Transaction and the date the dividend is paid to holders of Common Shares. In the event that the Transaction does not close, holders of Subscription Receipts will not be entitled to receive any Dividend Equivalent Payment.

The Equity Offering is expected to close on or about June 22, 2023 and is subject to certain conditions including, but not limited to, the receipt of all necessary approvals including the approval of the Toronto Stock Exchange.

Further information regarding the Equity Offering and the Transaction, including related risk factors, will be set out in the prospectus supplement to Gibson’s short form base shelf prospectus dated August 16, 2021, (collectively, the “Prospectus”) that Gibson expects to file on SEDAR on or before June 16, 2023. The Equity Offering will be made in all provinces of Canada under the Prospectus and on a private placement basis in the United States pursuant to exemptions from the registration requirements of the U.S. Securities Act of 1933, as amended. Investors should read the Prospectus before making an investment decision.

Bennett Jones LLP and Latham and Watkins LLP are acting as legal advisors to the Company with respect to the Equity Offering. Norton Rose Fulbright Canada LLP is acting as Gibson’s legal advisor with respect to the bridge financing obtained in connection with the Transaction and the Debt Offerings.

Conference Call and Webcast Details

A conference call and webcast will be held to discuss the Transaction at 2:45pm Mountain Time (4:45pm Eastern Time) today, June 14, 2023.

The conference call dial-in numbers are:

• 416-764-8659 / 1-888-664-6392

This call will also be broadcast on the Internet and may be accessed directly at the following URL:

The webcast will remain accessible for a 12-month period at the above URL. Additionally, a digital recording will be available for replay two hours after the call’s completion until June 26, 2023, using the following dial-in numbers:

• 416-764-8677 / 1-888-390-0541
• Replay Entry Code: 955877

About Gibson
Gibson Energy Inc. is a leading North American liquids infrastructure company with its principal businesses consisting of the storage, optimization, processing, and gathering of liquids and refined products. Headquartered in Calgary, Alberta, the Company’s operations are currently focused around its core terminal assets located at Hardisty and Edmonton, Alberta, and include the Moose Jaw facility in Saskatchewan and an infrastructure position in the U.S.

Gibson shares trade under the symbol GEI and are listed on the Toronto Stock Exchange. For more information, visit www.gibsonenergy.com.

This press release does not constitute an offer to sell securities, nor is it a solicitation of an offer to buy securities, in any jurisdiction. All sales will be made through registered securities dealers in jurisdictions where the Equity Offering has been qualified for distribution. Neither the Subscription Receipts nor the underlying Common Shares have been or will be registered under the U.S. Securities Act of 1933, as amended, or any state securities laws and such securities may not be offered or sold in the United States absent registration or pursuant to an exemption from such registration.

Readers’ Advisory
Certain statements contained in this press release constitute forward-looking information and statements within the meaning of applicable securities laws (collectively, forward-looking statements) including, but not limited to, statements concerning Gibson’s dividend payments or Gibson’s future performance. All statements other than statements of historical fact are forward-looking statements. The use of any of the words “anticipate”, “plan”, “aim”, “target”, “contemplate”, “continue”, “estimate”, “expect”, “intend”, “propose”, “might”, “may”, “will”, “shall”, “project”, “should”, “could”, “would”, “believe”, “predict”, “forecast”, “pursue”, “potential”, “possible”, “capable” and similar expressions are intended to identify forward-looking statements. Forward-looking statements, included or referred to in this press release include, but are not limited to statements with respect to: the business and financial prospects and opportunities of Gibson; the Transaction; the closing of the Transaction and the timing thereof; the anticipated benefits of the Transaction; Gibson’s financing plan for the Transaction; the availability and terms of the bridge financing facilities; Gibson’s use of the bridge financing facilities; the closing of the Equity Offering; use of net proceeds from the Equity Offering; the availability and closing of the Debt Offerings; use of net proceeds from the Debt Offerings; growth and expansion of STLLC’s facilities; competitiveness of STLCC and Gibson following completion of the Transaction; distributable cash flow per share accretion upon completion of the Transaction; maintenance of Gibson’s investment grade credit ratings; increased scale and diversification of Gibson’s business upon completion of the Transaction; Gibson’s take-or-pay exposure; and Gibson’s credit profile.

The forward-looking statements reflect Gibson’s beliefs and assumptions with respect to, among other things, completion of construction, future operating revenues and financial results; the satisfaction of all conditions to closing the Transaction and the Equity Offering and the timing thereof; the availability of the bridge financing facilities, and the terms thereof; the availability of the Debt Offerings and the terms thereof; the successful completion of the Transaction and Gibson’s ability to obtain the anticipated benefits therefrom; the accuracy of historical and forward-looking operational and financial information and estimates provided by STLLC; Gibson’s ability to integrate the assets acquired pursuant to the Transaction into Gibson’s operations; the impact of international or global events, including government responses related thereto on demand for crude oil and petroleum products and Gibson’s operations generally; general economic and industry conditions; expected growth in future distributable cash flows, the ability to deploy current and future growth capital costs, service date, share repurchases under the Gibson’s NCIB, Gibson’s ability to maintain future incremental funding capacity and ongoing adherence to Gibson’s Financial Governing Principles.

Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. Although Gibson believes these statements to be reasonable, no assurance can be given that the results or events anticipated in these forward-looking statements will prove to be correct and such forward-looking statements included in this press release should not be unduly relied upon. Actual results or events could differ materially from those anticipated in these forward-looking statements as a result of, among other things, failure to complete the Transaction in all material respects in accordance with the Transaction; failure to obtain, in a timely manner, regulatory, stock exchange and other required approvals in connection with the Equity Offering and the Transaction; failure to close the bridge financing facilities; failure to realize the anticipated benefits of the Transaction; the materiality of any closing adjustments; unforeseen difficulties in integrating STLCC’s business into Gibson’s operations; unexpected costs or liabilities related to the Transaction; risks related to the accuracy of information provided by the Sellers of STLCC in respect of the Transaction; the availability and repayment of the bridge financing facilities; the anticipated effect of the Transaction on Gibson’s credit ratings; risks inherent in the businesses conducted by Gibson and STLCC; the effect of international or global events, including any governmental responses thereto on Gibson’s business; the uncertainty of the pace and magnitude of the energy transition and the variation between jurisdictions; risks related to activism, terrorism or other disruptions to operations; competitive factors and economic conditions in the industries in which Gibson operates; prevailing global and domestic financial market and economic conditions; Gibson’s ability to access various sources of debt and equity capital, generally, and on terms acceptable to Gibson; changes in government policies, laws and regulations, including environmental and tax laws and regulations; and levels of demand for our services and the rate of return for such services. Financial outlook and future-oriented financial information contained in this press release about prospective financial performance, financial position or cash flows is based on assumptions about future events, including economic conditions and proposed courses of action, based on management’s assessment of the relevant information currently available and is subject to the same risk factors, limitations and qualifications as set forth above. The financial information included in this press release, has been prepared by, and is the responsibility of, management. The purpose of the financial outlook and future-oriented financial information provided in this Presentation is to assist readers in understanding Gibson’s expected financial results following completion of the Transaction, the Equity Offering and the Debt Offerings, and may not be appropriate for other purposes. The Company and its management believe that such financial information has been prepared on a reasonable basis, reflecting the best estimates and judgments, and that prospective financial information represents, to the best of management’s knowledge and opinion, the Company’s expected course of action. However, because this prospective information is highly subjective, it should not be relied on as necessarily indicative of past or future results, as the actual results may differ materially from those set forth in this Presentation.

PricewaterhouseCoopers LLP expresses no opinion or any other form of assurance with respect to forward-looking information contained in this Presentation. The report of PricewaterhouseCoopers LLP to be incorporated by reference into the prospectus supplement of the Company to be filed on SEDAR in connection with the Equity Offerings relates to the historical annual consolidated financial statements as at and for the years ended December 31, 2022 and 2021 of Gibson only and does not extend to the forward-looing information and should not be read to do so.

The forward-looking statements contained in this press release represent Gibson’s expectations as of the date hereof and are subject to change. Gibson disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as may be required by applicable laws. Readers are cautioned that the foregoing lists are not exhaustive. For additional information on the Company’s assumptions, and the risks and uncertainties that could cause actual results to differ from the anticipated results of our material risk factors, described in “Forward- Looking Information” and “Risk Factors” included in Gibson’s Annual Information Form and Management’s Discussion and Analysis dated each dated February 21, 2023 and the Prospectus, including the prospectus supplement to be filed on SEDAR and available on the Gibson website at www.gibsonenergy.com.

This press release includes information and data obtained from third party sources, including industry publications and publically available information, as well as information prepared by management on the basis of its knowledge of the industry in which the Company operates, including management’s estimates and assumptions relating to the industry based on that knowledge. The Company believes that such information and data are accurate and that its estimates and assumptions are reasonable, but there can be no assurance as to the accuracy or completeness of this information and data. Third party sources generally state that the information contained therein has been obtained from sources believed to be reliable, but there can be no assurance as to the accuracy or completeness of included information. Although the Company believes the information and data it obtained from third party sources to be reliable, the Company has not independently verified any of such information or data nor has the Company ascertained the underlying economic or other assumptions relied upon by such third party sources and cannot and does not provide any representation or assurance as to the accuracy or completeness of the information or data, or appropriateness of the information or data for any particular purpose and, accordingly, disclaims any liability in relation to such information and data. The Company disclaims any intention or obligation to update or revise any forward-looking statements whether as a result of new information, future events or otherwise, except as may be required by applicable laws.

Specified Financial Measures
This document refers to certain specified financial measures and industry measures that are used by the Corporation and STLLC, respectively, as indicators of their financial performance. These specified financial measures include non-GAAP financial measures such as Adjusted EBITDA, Distributable Cash Flow and Net Debt, in each case as presented on a standalone or consolidated basis. These specified financial measures also include non-GAAP ratios such as Net Debt to Adjusted EBITDA ratio, Transaction value to Adjusted EBITDA ratio, Adjusted EBITDA to Distributable Cash Flow ratio, Distributable Cash Flow Per Share, Payout ratio and Infrastructure-only Payout ratio, in each case as presented on a standalone or consolidated basis. A non-GAAP ratio is a ratio in which at least one component is a non-GAAP financial measure. Several of these Non-GAAP measures or Non-GAAP financial ratios are adjusted to reflect the impact of the planned Transaction and anticipated refinancing structure.

These specified financial measures are not determined in accordance with GAAP, either US Generally Accepted Accounting Principles (“US GAAP”) for STLCC, or International Financial Reporting Standards (“IFRS”) for Gibson (individually or collectively used as “Non-GAAP”), and do not have a standardized meaning under IFRS or U.S. GAAP, as applicable, and therefore may not be comparable to similar measures used by other companies. The Corporation believes presenting non-GAAP financial measures helps readers to better understand how management analyzes results, shows the impacts of specified items on the results of the reported periods, and allows readers to assess results without the specified items if they consider such items not to be reflective of the underlying performance of the Corporation’s operations.

Management considers these to be important supplemental measures of the Corporation’s and STLLC’s performance and believes these measures are frequently used by securities analysts, investors and other interested parties in the evaluation of companies in industries with similar capital structures. Readers are encouraged to evaluate each adjustment and the reasons the Corporation considers it appropriate for supplemental analysis. Readers are cautioned, however, that these measures should not be construed as an alternative to net income, cash flow from operating activities, segment profit, gross profit or other measures of financial results determined in accordance with IFRS or U.S. GAAP, as applicable, as an indication of the performance of the Corporation or STLLC. For further details on these measures, see the “Specified Financial Measures” section of the Corporation’s MD&As for the year ended December 31, 2022 and the three months ended March 31, 2023, each of which is incorporated by reference herein and is available on our SEDAR profile at www.sedar.com and on our website at www.gibsonenergy.com.

Corporation’s historical financial information is prepared under IFRS and STLLC historical financial information is prepared under US GAAP. Historical financial results for STLLC have been converted from U.S dollars into Canadian dollars, using rates in effect for the respective periods.

Adjusted EBITDA, Distributable Cash Flow, Net Debt, Net Debt to Adjusted EBITDA and Distributable Cash Flow Per Share are defined in the Corporation’s MD&A for the three months ended March 31, 2023, and are reconciled to their most directly comparable financial measures under GAAP for the three months ended March 31, 2023. For all prior periods, these measures are reconciled to their most directly comparable financial measures under GAAP in the Corporation’s MD&A for the respective year. All such reconciliations in respect of the Corporation are in the non-GAAP advisory section of the applicable MD&A, each of which are available on Gibson’s SEDAR profile at www.sedar.com and each such reconciliation is incorporated by reference herein.

Transaction value to adjusted EBITDA, which is a non-IFRS ratio that the Corporation considers useful to investors as it demonstrates how much unlevered value the Transaction implies compared to adjusted EBITDA of STLLC. Transaction value to adjusted EBITDA is calculated as the Purchase Price divided by adjusted EBITDA of STLLC.

Adjusted EBITDA to Distributable Cash Flow ratio is a non-GAAP ratio, which is useful to investors as it demonstrates the earning power of the business relative to free cash flow available for distribution. Adjusted EBITDA to Distributable Cash Flow ratio is defined as Adjusted EBITDA divided by Distributable Cash Flow.

Forward adjusted EBITDA is a forward-looking non-GAAP measure, which is computed in a manner consistent with adjusted EBITDA, but requires the use of forward looking information. As such, forward adjusted EBITDA is subject to uncertainty. The Corporation believes it has used reasonable forecasts to determine forward adjusted EBITDA, but actual results may materially differ.

Reconciliation of non-GAAP financial measures

Adjusted EBITDA reconciliation to the nearest GAAP measure, Operating income for STLLC:

Adjusted EBITDA to DCF is a non-U.S. GAAP ratio which the Corporation considers useful to investors as it demonstrates the earning power of STLLC’s business relative to free cash flow available for distribution. Adjusted EBITDA to DCF ratio is defined as adjusted EBITDA divided by DCF.

Distributable cash flow reconciliation to the nearest GAAP measure, net cash provided by operating activities for STLLC:

DCF is used to assess the level of cash flow generated by STLLC and to evaluate the adequacy of generated cash flow to fund dividends and is frequently used by securities analysts, investors, and other interested parties. Changes in non-cash working capital are excluded from the determination of DCF because they are primarily the result of fluctuations in product inventories or other temporary changes. Replacement capital expenditures and lease payments are deducted from DCF as there is an ongoing requirement to incur these types of expenditures.

Pro forma Adjusted EBITDA reconciliation to the nearest GAAP measure, net income, for the Corporation and STLLC:

(1)  Column was derived from historical statements of operations of STLLC which were prepared in U.S. dollars. The exchange rate used to translate the U.S. dollar amounts is the average exchange rate for the twelve months ended March 31, 2023, of $1.3222 for U.S.$1.00.

Pro forma distributable cash flow reconciliation to the nearest GAAP measure, cash flow from operating activities, for the Corporation and STLLC:

(1)  Column was derived from the historical statement of operations for the year ended December 31, 2022, of STLLC, which was prepared in U.S. dollars. The exchange rate used to translate the U.S. dollar amounts is the average exchange rate for the year ended December 31, 2022, of $1.3011 for U.S.$1.00.

(2)  Pro forma adjustments to reflect additional interest expense for the assumed financing structure (i.e. the Transaction is funded from the net proceeds of the Equity Offering and the bridge financing facilities) as well as additional income tax expense relating to STLLC.

Proforma Net Debt for the Corporation and STLLC:

(1)  Column was derived from the historical balance sheet as at March 31, 2023 of STLLC, which was prepared in U.S. dollars. The exchange rate used to translate the U.S. dollar amounts is the exchange rate as of March 31, 2023 of $1.35 for U.S.$1.00.

(2)  Pro forma adjustments to incorporate assumed refinancing structure, reflecting the intention replace the bridge financing facilities with the net proceeds from the Equity Offering and the Debt Offerings.

For further information, please contact:

Beth Pollock
Vice President & Treasurer
Phone: (403) 992-6478
Beth.Pollock@gibsonenergy.com

Media Relations
Phone: (403) 476-6374
communications@gibsonenergy.com