Gibson Energy Inc. (OTCPK:GBNXF) Q3 2022 Earnings Conference Call November 1, 2022 9:00 AM ET
Company Participants
Mark Chyc-Cies – VP, Strategies, Planning and IR
Steve Spaulding – President and CEO
Sean Brown – CFO
Sean Wilson – SVP, Chief Administrative Officer and Sustainability Officer
Kyle DeGruchy – SVP, Commercial
Conference Call Participants
Jeremy Tonet – JPMorgan
Rob Hope – Scotiabank
Robert Kwan – RBC Capital Markets
Ben Pham – BMO
Robert Catellier – CIBC Capital Markets
Andrew Kuske – Credit Suisse
Patrick Kenny – National Bank Financial
Operator
Good morning. My name is Sylvie and I will be your conference operator today. At this time. I would like to welcome everyone to the Gibson Energy Q3 2022 Conference Call. [Operator Instructions]. Thank you.
Mr. Chyc-Cies, you may now begin the conference.
Mark Chyc-Cies
Thank you, operator. Good morning and thank you for joining us on this conference call discussing our third quarter 2022 operational and financial results.
On the call this morning from Gibson Energy are Steve Spaulding, President and Chief Executive Officer; and Sean Brown, Chief Financial Officer. Also in the room, from the senior management team are Sean Wilson, Senior Vice President and Chief Administrative and Sustainability Officer; as well as Kyle DeGruchy, Senior Vice President and Chief Commercial Officer.
Listeners are reminded that today’s call refers to non-GAAP measures and forward-looking information. Descriptions and qualifications of such measures and information are set out in our continuous disclosure documents available on SEDAR.
Now like to turn the call over to Steve. Steve?
Steve Spaulding
Thanks, Mark. Good morning everyone, and thank you for joining us today.
I’m very pleased with the performance of the business during the third quarter. Our Infrastructure segment continues to provide consistent, stable cash flow. Was very much in-line with our expectations.
On the marketing side, on our last call, we provided our outlook for a much stronger quarter, which we outperformed. As the business environment improved over the quarter, we ended up well-above our expectations for both, our refined products business and our crude oil market business. Our distributable cash flow of $115 million represents the strongest quarter ever for Gibson, and adjusted EBITDA of $149 million would also be one of the strongest for the company.
Perhaps more important is our infrastructure reaching a new high watermark when excluding one-time items. While we certainly had a strong quarter for marketing, it is just ratable infrastructure performance that supports our dividend and capital structure. These strong results further improved an already strong financial position. Our leverage ratio has decreased to 2.7x, which is below the bottom-end of our target range, and our payout ratio decreased to 64%, which is also the lower-end of our target range of 70% to 80%.
Given the strong financial position and consistent with our plan in the event we realized improved business performance, we have continued to be very active with share repurchases to increase the capital we return to our shareholders. Just in the start of the third quarter, we bought back $41 million. We’re about 1.2% of our outstanding shares.
With this buyback activity in the quarter, we have now reached the full year target of $100 million, with buybacks to date, representing just under 3% of our outstanding shares. And we will continue these repurchases through the balance of the year, targeting up to $150 million for the year, which would represent the repurchase of nearly 4.5% of our outstanding shares, which we see as meaningful and reflective of a robust third quarter financial performance, as well as our current view of another strong financial performance in the fourth quarter. We also see it as acting as our commitment to return capital to shareholders when appropriate and within our capital allocation framework.
We consider our share repurchase is complementary to our dividend, which we increased by 6%, earlier this year and will review again in February. I would remind everyone that both, management and the Board sees value in providing a steady growing dividend, especially, in the current inflationary macro-environment. Fortunately, if we buy-back 4.5% of our shares, it also reduces our dividend costs by that same percentage.
In terms of running the business, our major focus right now is on securing additional growth projects. Our goal remains to deploy a $150 million to $200 million each year, and we are increasing our commercial focus by developing new ventures team to review and develop opportunities outside our existing footprint and in an energy transition.
In terms of sanctioning the next round of capital, at Edmonton, we continue to hold discussions for additional tankage. We believe Gibson is well-positioned to support shippers on TMX, optimize crude oil netbacks in midstream requirements. We remain optimistic that we can sanction an additional two tanks.
In terms of timing, clear visibility to TMX in-service date remains important to our potential customers, meaning sanctioning decision has gotten pushed into 2023. We also believe we continue to develop our additional infrastructure at Edmonton under the Suncor MSA. As we saw with the biofuels blending project, which had a capital cost equivalent to roughly 1.5 tanks, opportunities under the MSA can be sizable, and we are in the early stages of a potential project under that MSA in 2023.
On the DRU, we continue to advance discussions for an additional phase and continue to believe the economics for the full value chain will remain strong relative to pipelines over the long-term. We’ll provide a more fulsome capital outlook for our 2023 capital in early December. Like this year, capital for 2023 will be contingent on sanctioning additional projects. Given we expect it to be below our internal funding capacity, we expect buybacks will continue through 2023.
We continue to advance our ESG journey at Gibson and we released our second Sustainability Report. We believe the report showcases the progress we’ve made in embedding sustainability in our Business Culture, as well as working towards our 2025 and 2030 targets and our roadmap to net zero.
On the safety side, we are achieving the best health and safety performance in our company’s history. We booked – we view both, our lost-time injury frequency and a recordable vehicle incident frequency rate of 0 for employees and contractors for the second year in a row as an outstanding result.
Also, our improvement in our total recordable injury frequency or TRIF is a rate at around 0.4 for employees and contractors. This is top-quartile safety performance among our peers in Canada and North-America. We remain vigilant and we’ll continue to develop and mature our safety culture with a focus on 0 incidents.
It’s also worth noting, that we have already achieved both our Board diversity targets and one of our senior leadership targets. Having at least one racial and ethnic minority or indigenous person on the Board, of having 40% women on the Board, both, ahead of our 2025 target. And having at least one racial or ethnic minority person or indigenous person hold an SVP title or above. That’s important to know, 50% of our leadership team, Vice-President and above, identified as female were underrepresented.
We are proud of our commitment to our communities. We operate in and around, having made $1.5 million in contributions to non-profit organizations this year and the average employee having volunteered at least 12 hours across the year.
As we continue our ESG journey, we recently released our indigenous engagement principles. This will help us continue to advance our indigenous relations effort and further our relationships with indigenous communities in and around our areas of operation.
To close, the business certainly delivered a strong quarter. Infrastructure reached a new high. Strong performance across the asset-base. The Marketing segment was well-above our expectations. And as a result of our strong business performance, we stay true to our commitment to return capital to shareholders through the buyback of just under $100 million to date and an expectation to buyback up to an additional $50 million through the remainder of the year.
I’ll now pass the call over to, Sean, who will walk us through our financial results in more detail. Sean?
Sean Brown
Thanks, Steve.
As Steve mentioned, another strong quarter. Infrastructure adjusted EBITDA of $111 million this quarter was in-line with the second quarter of this year. Recall, that last quarter, we had the Moose Jaw turnaround, but that was offset by a one-time item. As always, a little movement within each part of the business but, overall, a very steady result, which is what we like to see from an Infrastructure business.
And as Steve mentioned, a high watermark for the Infrastructure business, with infrastructure driving our highest distributable cash flow result ever. Comparing this quarter to the third quarter of 2021, adjusted EBITDA increased by about $7 million, as revenues at Edmonton benefited from additional infrastructure and service, as well as entering into the Suncor MSA, the DRU being fully operational, and a higher contribution from Canadian pipelines.
In the Marketing segment, adjusted EBITDA of $48 million was above our outlook. When we provided that outlook, we are seeing that the quarter was shaping up nicely on the Refined Product side, driven by drilling fluids and road asphalt. But what was somewhat unexpected was a strong contribution from Crude Marketing in the last month of the quarter.
The results this quarter were a $35 million increase from the second quarter of this year and, $32 million increase from the comparable quarter last year. In both instances, contribution from each of Crude Marketing and Refined Products was higher this quarter.
In terms of our outlook for Marketing, the environment for Refined Products remains positive, while the Crude Marketing side it’s still operating within a below average environment, given that the wide WCS-WTI differential is reflecting more quality differential than any sort of locational opportunity, and the forward curve remains in backwardation, limiting tank roll opportunities.
As such, we would expect adjusted EBITDA of $30 million or higher in the fourth quarter. Putting that into better context, the Marketing segment has now recorded adjusted EBITDA through nine months of $81 million, with our outlook implying a $110 million or more for the year.
Finishing up the discussion of the results, let me quickly work down to distributable cash flow. For the third quarter, we reported distributable cash flow of $115 million, which was a $40 million increase from the second quarter of this year and a $44 million increase from the comparable quarter last year.
The majority of the differences would be the factors I already spoke to when discussing the segment results. Smaller drivers would include the benefit of foreign-exchange gains, partly offset by higher current income tax, which is largely due to higher taxable income. If comparing to the third quarter of last year, G&A was also slightly higher.
Now, although, we spoke to it last quarter, we remain cognizant that inflation is a focus for many right now. So please let me reiterate, that we have seen some impact, though, mostly on our operating side in terms of items such as power and utilities, as well as repairs and maintenance.
As we have advanced our 2023 budget process, one area that we have seen some cost pressures is on the G&A side from both employee costs increasing, plus, ensuring that we maintain the capabilities we need to advance our business, such as on the commercial, as well as technology sides. In that context, we would expect that our G&A run rate has increased slightly, probably to that $10 million to $11 million per quarter range.
In terms of the Infrastructure business we see a lower risk relative to other business models in the midstream space. We have escalators on the majority of our tank contracts and our operating costs as a percentage of revenue are low. On the capital side, we have also seen cost escalations, but these so far have been contained within contingency amounts. That being said, inflation is certainly consideration as we review our 2023 budget or any other new capital sanctions.
Lastly, on the capital structure side, only about 10% of our total borrowings are on our credit facility, with the remaining 90% in the form of fixed-rate notes. The first maturity on those notes is in mid-2025. So we also don’t see any cost inflation from re-financings for nearly three years.
So, we remain cognizant of the increase in funding costs for new capital, which is being reflected in our required returns as we evaluate newer opportunities. In terms of our financial position, our payout ratio now sits at 64%, which is below the bottom-end of our 70% to 80% target range, and our debt-to-adjusted EBITDA decreased to 2.7 times, which is below the bottom-end of our 3 times to 3.5 times target.
Given, that a majority of the decrease in energy metrics were driven by an improvement in marketing. We would also look at it on an Infrastructure-only basis as well. Using this lens, our leverage would be 3.2 times and our payout ratio will be approximately 68%, where we seek to be below 4 times and 100% respectively under our financial governing principles. So, certainly a very strong financial position.
And taking into account our financial position, the consistent performance of our Infrastructure business and the uplift in Marketing results, we have continued to adhere to our capital allocation philosophy, having bought back $97 million in shares so far this year, including approximately $41 million since the start of the third quarter. This repurchase of 3.9 million shares thus far this year represents approximately 2.7% of shares outstanding, an amount we view as particularly notable relative to peers.
And as Steve mentioned, having effectively already reached our prior target of $100 million provided on the last earnings call, we are now targeting buying back up to $150 million this year. To the extent our share price remains around current levels, this would imply that we repurchased nearly 4.5% of our outstanding shares this year.
In summary, the results in the third quarter were solid. The Infrastructure segment had its strongest quarter, while Marketing results were above both, our expectations and levels we have been seeing in the past few quarters.
From a financial perspective, we remain in a very strong position being below the lower-end of both our leverage and payout target ranges, and we continue to be of the view that our business offers a strong total return proposition to investors, which we believe we have bolstered with our use of the buyback, both, in terms of what we’ve executed on today and our intention through the balance of the year.
At this point, I will turn the call over to the operator to open up for questions.
Question-and-Answer Session
Operator
[Operator Instructions] And your first question will be from Jeremy Tonet at JPMorgan. Please go ahead.
Jeremy Tonet
Hi. Good morning. Just wanted to touch on the Marketing segment if I could a little bit here and thanks for the color on the fourth quarter and the outlook for above 30 there, but just I was wondering if we might be able to work bit past that into ’23 how you see the year shaping up as a whole? Do you see a bias towards kind of the high-end or low-end of your normalized range there and what are the key variables that you think could change around that?
Steve Spaulding
Let me start, Jeremy. This is Steve. We kind of went through the budgeting process and taken a pretty good look at our Marketing organization. Obviously, there’s a lot of variables that change and can change over the year. We have the 80 to 120 out there. And I would say right now, we’re kind of looking at mid-range around that, just because we don’t know all the variables that are out there. But I’ll hand it over to Kyle to give you a little bit more color.
Kyle DeGruchy
Jeremy, Kyle, here. Yes. I mean Steve covered that pretty nicely over ’23 year. Just clearly, obviously a few variables there. Right now, what we know is, is kind of fair remarks that our Refined Products business looks to be healthy at the moment. Q3 was really around asphalt and drilling fluids. We expect some of that to slow on the asphalt side, which is normal for this time of year.
On the other side, our Crude Marketing business is really going to be dependent on how that heavy market in general is moving, is looking through ’23. And we talked a little bit last call to those variables right and it was got Gulf Coast and the Midwest, really sort of driving the bus in terms of pricing up here.
We’ve got some near-term issues that I expect to cleanup, in a way of Midwest refiners having some outages, with the LSPR cleans. But we still see that export market really opening clear barrels. So, those are some of the variables that will impact ’23 and some of the things that we’re looking at right now.
Jeremy Tonet
Got it. That’s very helpful. Thank you. And just want to pivot towards capital allocation here in clearly a standout on share repurchases relative to all North American peers here, and I was just wondering if any of these upside variable pan-out next year, how would you think about, I guess, deploying that? It seems like we will see more leaning towards share buybacks or just wondering if you could kind of update us on capital allocation thoughts within the context of upside possibilities there?
Sean Brown
Yes. Thanks, Jeremy. I mean, really not a lot of change from a capital allocation philosophy from last year and then we’re going to stay fully-funded. Priority will be on allocating capital to growth capital to the extent that it is the nature that we typically invest, I think five to seven build multiples, long-term contract, investment-grade counterparties and to the extent that there is excess cash flow. Beyond that, the philosophy will remain very much the same as this year.
If that’s from Infrastructure principally, then yes, as we talked about in our prepared remarks, we’ll continue to bias dividend increase. We do see value in modest payable annual dividend increases to the extent that it’s primarily for Marketing.
Then, we will continue to buy share buyback. So, you saw this year, a capital number. That’s later than our fully-funded number. We had a $100 million target in buybacks. Earlier in the year, we’ve seen outperformance in the Marketing business more in the tail-end of the year here, and you will have seen us flex up the buybacks. So, I expect to have somewhat of a similar dynamic next year.
Operator
Next question will be from Rob Hope at Scotiabank. Please go ahead.
Rob Hope
Good, morning, everyone. Another question on capital allocation. With a strong balance sheet strong cash-flow, how are you thinking about M&A to potentially give yourself another platform as another lever for growth?
Steve Spaulding
Thank you, Rob. I would say we’re – over the last 2.5 years to 2 years, we’ve been out there looking for M&A opportunities that fit us and fit our strategy, fit our risk portfolio, and I think we’re going to continue to do that. We may broaden the net some, just because opportunity set is pretty small, but it’s definitely an active piece of our commercial and corporate development. Sean?
Sean Brown
Yes. Absolutely. I think time that the capital allocation is good as well because I think what you’ve seen here and as Steve said, it’s not like we have not been actively looking for M&A. It’s just we’ve been very disciplined as we think about it. And what we’ve seen thus far, you’re right, we have got a fantastic balance sheet.
We did have excess cash flow this year, but we’re very happy to allocate that to share buybacks as we wait for opportunities to present themselves and to the extent that they do, that’s something that we were willing to action. But, I mean, again, to the extent, our view is, we can continue to remain disciplined and allocate excess cash flow to share buyback and wait for that opportunity present itself.
Rob Hope
Thank you. And then maybe just a follow-up question on the broadened the net analogy. Historically, we’ve seen you are very focused on liquids, renewable diesel, the DRU. Could we see you broaden that further out more on the CNG sphere, maybe into the gas sphere as well?
Steve Spaulding
You know we’ll certainly look at everything that’s probably not our core, right, where liquids is our core, but if an opportunity comes that we feel is a good fit and the Board feels is a good fit for us, then we might action something like that, but, I would think you know our main focus really is Terminals. How do we build terminals? Maybe how do we expand that Terminal business outside of just crude oil? How do we use our Terminal and expertise in the Renewable side of the business? Does that explain?
Operator
Next question will be from Robert Kwan at RBC Capital Markets. Please go ahead.
Robert Kwan
Great. Good morning. Whether it’s M&A or just around the new ventures and new platforms, just thinking about your core growth, Sean, you mentioned five to seven build multiples, long-term contracts, investment-grade counterparties take or pay that type of thing. How much are you willing to sacrifice some of that, whether that’s the going in return for the risk profile just to establish the new base or new platform to get something going?
Steve Spaulding
So that’s the debate we’ve definitely had amongst our management team and the Board. If we may need to take on a little bit more risk than we have in the past to establish a new platform and so, you know that’s something that we’ll be very careful in doing. But I do think at the end-of-the day, we’re not looking for overall commodity exposure, right. Sean, I’ll turn it over to you.
Sean Brown
Yes. I think a great question. As we look to establish new platforms, you don’t have the incoming advantage you otherwise might have. So, the initial investment certainly may look a bit different than, as Steve said, that’s something that we constantly, we think about and as you look at any investment opportunity, that’s going to be the debate. I mean I think the one thing is, it’s not something we need to do. As you’ve seen this year, we’re happy to allocate shares to buybacks. We’re happy to sit here with a fantastic balance sheet and look for the right opportunity present itself.
So as we sit around the table, it’s not like we think that we have to go and go risk-on or making investment headset over returns, just to do something. We think, I talked about it in our prepared remarks, the total return that we provide to investors through a steady growing dividend, stable cash flow, supplemented by share buybacks is actually quite attractive as we look for those opportunities.
Robert Kwan
Got it. And just if you were to get involved in something like that and take on more risk or a lower return kind of as a cost of entry, is that something where that investment or whether it’s a new kind of project or M&A, would that be incremental in your view or would it possibly be transformational size-wise?
Steve Spaulding
I would say more incremental than transformational. Maybe transformation on a long-term basis as we continue to deploy that type of strategy but not on a one deal transaction, right. We’re probably looking for much, much smaller transactions to do that. You got to think, when we always say the five to seven, we’re building out infrastructure such as the top of the hill, where we’ve built-out over three million-barrels of tankage, the first tanks. The rate-of-return on those first tanks wasn’t high, right. So, we’re used to actually deploying smaller rate of returns at the beginning to reap the larger rate of returns in the end.
Robert Kwan
Got it. And maybe just to finish in terms of a specific project along this line of questioning, Renewable Diesel, can you just give an update there? You made some comments just around being cautious in the inflationary environment. So, Just where are you at with that project?
Steve Spaulding
I would say, we’re still advancing engineering on that project. We still see long-term opportunity there. I would say we are, we will probably bringing ourselves back to where we began, which is, we’re looking for a fee-for-service on that. And that opportunity is definitely with the U.S. Inflation Reduction Act kind of boxed out really Canadian opportunity to participate in Renewable Diesel in the States. And so, we still believe it’s a great product, but, I think it’s going to need to be Canadian-led project and so we’re going to need some additional support from the government.
Robert Kwan
Okay. And you said comments looking back for a fee-for-service. I don’t want to pin you to an exact number but like what percentage of the output would you want to be long-term contracted on a fixed-fee basis?
Steve Spaulding
What percent would I want? A 100%.
Robert Kwan
What percent do you think is reasonably attributable if you think for this project?
Steve Spaulding
I think we’re still targeting that 100%, right. I mean that’s our goal. But obviously, negotiations can around some. But…
Robert Kwan
How low would you go about that?
Steve Spaulding
I don’t, I’m not. I can’t answer that at the current time. But we’re not going go down 100% right now. There’s just too much risk out there in the market. So much, I know.
Operator
Next question will be from Ben Pham at BMO. Please go ahead.
Ben Pham
Hi. Thanks. Had a couple questions on the Infrastructure segment an I’m wondering you can decompose it bit more between percent tanks, percent U.S., maybe Moose Jaw and there and then also at the associated contract lengths of each of those pieces?
Steve Spaulding
Talking about going-forward or – Ben, look…
Ben Pham
I think maybe the current percentages are more jewelling on.
Steve Spaulding
We don’t really provide that level of granularity. Ben, out there as you know, the vast majority of that tankage business, we do have the ITP and Sean had called the U.S. business being relatively modest right now and our Canadian Pipelines business being relatively modest right now as well. So we don’t typically provide that.
But again, vast, vast majority would be on the tankage side, but again, Hardisty really being the biggest driver amongst that. From an average contract life, there are rating agency reports. You can get that from there. Again, this is on the tankage business, which is what should matter and, think about being sort of eight-ish this year.
When you look at what we announced and what we’ve been executing this year, we’ve built the tank at Edmonton. We did the Biodiesel project at Edmonton on a 25-year basis. Yes, and a 10-year contract on the tank at Edmonton. So, – and then you got to look, we did spend some money at Moose Jaw, right. It wasn’t a ton of money that we spent in Moose Jaw, but it’s a it’s a two or three times multiple and it reduces our environmental footprint by 20%. So, as far as total hydrocarbons, our total carbon emissions.
So, and it also expanded the facility 1,000 barrels a day currently and we hope to get it all the way up to 24,000 barrels per day. So, if you look at Moose Jaw, we’ve really been able to expand it from 17,000 barrels a day, all the way up to eventually, 24,000 barrels a day. We had some small debottlenecks that we’ve got to do and without adding any fuel and reducing our environmental footprint. So, really that’s one of the things.
When you look at Moose Jaw, I would say this is a record year for Moose Jaw facility. Both, because we were able to. reduce our cost per barrel. On the upside, increase overall production or overall capacity, and lower fuel costs, along with some really good tailwinds on in the second-half with reduced spike out.
Sean Brown
And Ben, for some of that granularity, it’s up on our investor deck, from an Infrastructure split so. I guess maybe with Mark afterwards if be looking for more than that, but we do give it on a segment profit basis amongst those different constituents, in the deck as well.
Ben Pham
Okay. That’s great color, guys. And then maybe the volume sensitive side of Infrastructure. You – there some room left for upside there, especially, on COVID-19, are you still maybe going to or are you going to levels more or its getting closer to your initial expectations?
Steve Spaulding
Ben, listen, we’ll talk about Hardisty at the beginning, right. So, Hardisty, just about quarter-on-quarter, when you look-back, every quarter goes up. Now certainly we have the – we’re going to see higher throughput in the fourth and first quarter as drilling really ramps-up across it. But, actually in September we moved our highest volume ever prior to drilling being actually even being injected in the stream or being beefed up. So, we’re moving almost 1.3 million barrels a day for Hardisty now, and I assume that we will we’ll surpass that during the winter season.
So, and then at Moose Jaw. We have record throughputs at Moose Jaw. We have record throughput through our U.S. assets, record throughput through our – not record throughputs from our Canadian assets, but record throughput over the last six or seven years to our Canadian gathering system. And then, at Edmonton, I would think it is almost, I would say, we posted 50% higher than we were before we – over last year. We have a significant increase across our throughput at Edmonton.
So, really we’re seeing a ramp-up of throughput across all systems. And that’s one of the reasons you’re seeing this, a record. Although, we don’t have a big driver when it comes to throughput, it is one of the reasons you’re seeing this quarter as one of our record quarters on the Infrastructure side. And we don’t see that changing, Ben.
Ben Pham
Okay. That’s great. And maybe one last one from me on your comments on Renewable Diesel. Would you characterize that more it’s the file so sitting on your desk there? Or is it in a file on cabinet? Doesn’t look like you have shredded the documents or shredded the B opportunity yet?
Steve Spaulding
Now, I think long-term, I think opportunities – great opportunities sometimes take time to actually develop, and we think this is a great opportunity for us. But we’re going to take the right time to develop it.
Operator
Next question will be from Robert Catellier, CIBC Capital Markets. Please go ahead.
Robert Catellier
Hi. Good morning. I think I’ll start by congratulating you on these strong results here. But my question was on the new ventures. I wonder if you could detail the mandate you’ve given then in terms of, sorry, the geography and the asset classes you might want consider?
Mark Chyc-Cies
All right. I shall give that over to Kyle, for that organization reports to Kyle.
Kyle DeGruchy
Hi, Robert. Yes. I mean I think that, we would love to be within our existing geographies preferred, but, certainly within our existing skill-set, whether that’s tanks or processing. So, we are looking, I’d say not outside of North-America. But again all these opportunities, no matter where they are in North-America, they certainly have to fit within our risk-return parameters. And so, team is being broadened.
The team is currently being built-up in order to look at some of these opportunities, whether that’s in our existing energy transition space, maybe more in the Refined Products world, but, I wouldn’t think it is, I wouldn’t say it would be anywhere outside of North-America at the moment. But that’s kind of the scope right now. Again, we want to be within our existing skill-set. Like Steve said, that kind of currently exists around our Tankage side of the business, Processing and some of our Marketing capabilities.
Robert Catellier
Okay. That’s helpful. And then, when you say you’re broadening the team, you’re actually adding outside town? So it’s not just a reallocation from somewhere else, it’s new people?
Kyle DeGruchy
Kind of both, right. I mean we have some really creative people in the organization that we’re moving into that group. We’re looking to add someone North-America and in the U.S. and on that side and probably predominantly focused on energy transition terminating. How do we get a footprint into that? How do we build that out? And then in Canada, I think we’re probably going to add few more senior people. One, focused on kind of broadening that net and new ventures and then the other is just a real focus on expanding our footprint in our traditional business.
Robert Catellier
Okay. And then last question for me is, just curious as to, one, you see the impact from Suncor consolidating tax interest in Fort Hills, but do you think that has any impact on volumes for you, either in the Infrastructure side or Marketing?
Steve Spaulding
I mean, Suncor is one of our largest customers. We have a great relationship with Suncor. I would say, it is just an opportunity for us to continue to strengthen that relationship going forward, probably.
Operator
Next question will be from Andrew Kuske of Credit Suisse. Please go ahead.
Andrew Kuske
Thanks. Good morning. Steve, you mentioned earlier just the Inflation Reduction Act in the U.S. and some of the challenges as a Canadian company around the IRA. What do you see coming down the pipeline, maybe what the Canadian economic update later this week to try to level the playing field on certain capital being allocated into certain pockets of industry between Canada and the U.S. to try to make things more fair from an IRA standpoint? And then, how would that actually affect Gibson?
Steve Spaulding
So, thanks. Great question there, Andrew. I mean one of the things to think about there is that the U.S. is setting up a system where you have visible per gallon incentives, whereas in Canada right now, the intention is to create a market, but the value of the credit is somewhat uncertain. So, one of the many things that would help would be to see additional certainty on the value that credit. Also, having some kind of visibility to capital, whether it’s through tax incentives or support on capital. That would also be helpful.
Andrew Kuske
Okay. That’s helpful. I guess we’re all be waiting for Thursday to see if anything happens on that front. And then maybe a bit more narrow question and this is probably directed to Sean. And just on the inventory levels, is it fair to say just with product prices where they are, that your inventory levels are pretty lean from the product you’re actually sitting on your books?
Sean Brown
I mean, I can’t speak to that. I would say if you look from a volume perspective quarter-over-quarter, the vast majority of the inventory reduction was actually from pricing. It wasn’t from volume. So, you see that, but, I mean maybe you can speak to sort of inventory expectation, Kyle.
Kyle DeGruchy
Yes. Sure. Yes. I think Sean covered that pretty well. I think we did have a pretty significant decrease in commodity prices. So, that’s going to be the main driver. Heading through Q4, I mean, we will probably see, you would historically see a little more inventory primarily around our Asphalt business, but, there are also more opportunities generally in Q4 and Q1 in the Crude Marketing space.
I mean those, if you do see additional inventory that’s really opportunity based. So, we are doing that for a reason but, I mean that’s is, saying historically, but, we would hope to see those opportunities. So, if we are building opportunities – inventory, then that’s based on us seeing value in doing so.
Steve Spaulding
Yes. So, time spreads, right. And so time spreads open up for us, we’ll add inventory. But we’ll definitely keep our cost-of-capital in mind when we’re doing that. But we have ramped-up. When the market goes into a tangle, that’s opportunity for us to take storage time spread, locked-in margin. But with the rising interest rates, we will definitely keep an eye on what those inventory costs there are versus what we’re capturing.
Operator
Next question will be from Patrick Kenny at National Bank Financial. Please go ahead.
Patrick Kenny
Yes. Good morning, guys. Just as it relates to the energy transition, it sounds like the Renewable Diesel is bit more longer-term at this point. Just wondering, what are the more near-term opportunities you might be able to look at across the portfolio just to use energy transition as a growth vehicle? And then also, now that energy security has moved into the spotlight, if you see this is opening the door for bolting on some other hydrocarbon opportunities, such as, gathering pipelines or perhaps down the DRU value chain?
Steve Spaulding
There is a lot of questions in there, Pat. Start with, where we are now. I mean we actually executed the biodiesel blending facility for Suncor and put it in-service this year. That is the renewable opportunity. We believe we will add another – we’ll do a similar-sized project about a tank and a half a capital.
We think we’ll execute that probably in the second-half of next year. And then, we continue – part of the New Ventures team is to look for those opportunities, how do we get a footprint and how do we grow you know as renewable diesel grows as a commodity or as FAF grows as commodity, both north and south of the border.
And then, I did talk about the New Ventures team. One of the roles of that, kind of a high-level BD, first we’re bringing on-board is to really focus on conventional production in Canada, and how do we continue to develop and expand our gathering presence for conventional production in Canada. I think you have one more but….
Kyle DeGruchy
I think that it was just on energy security. I mean we’ll see how that plays out. I think that we would be of a similar view that all of that really point to being kind bullish Canada from a regulatory regime, reliability of supply. How that plays out exactly we’ll see, I mean. But, I think that over the long-term, I mean that’s certainly should add opportunities and value to our existing assets and then potentially things like DRU, as well I would say it’s probably early innings on seeing how that plays out, but, we think that’s probably a tailwind for Canada in general.
Patrick Kenny
That’s great. And I guess, as you look to compete for more of these opportunities, I guess for Sean here on the credit rating front. I know there’s not much in the way of debt maturities over the near-term, but, just curious how you’re thinking about perhaps achieving at least a one-notch upgrade on the rating at some point and how you might see the quickest path towards getting there?
Sean Brown
I mean, Pat, if you look at it, we’re just over 2.5 times levered. We’re 90% Infrastructure and that Infrastructure which we’ve seen through the ratability is true infrastructure. So, we made some of the most stable cash flows that’s there. So if you ask me, I think we already have a credit profile that’s deserving of that if you look at all the various components, including quality of counterparties. If you think about it, really, what’s holding us back right now is being bigger, and I think getting bigger just for the sake of getting a one-notch upgrade would be foolish.
So, I mean, how are we going to get there? We’re going to continue doing what we’re doing. We’re going to continue to focus on the high-quality cash flows and we’re going to have a conservative capital structure. And just like achieving the investment-grade rating it will happen overtime. But I don’t see us doing anything material just to get that rating, because, to be clear, I think we already have a credit profile that’s reflective of it. And if you actually look at where our bonds trade, it would be reflective of a mid-BBB credit, more than it would a BBB-minus.
Operator
Thank you. And at this time we have no further questions, gentlemen. Please proceed with closing remarks.
Mark Chyc-Cies
Well. Thanks operator and thank you everyone for joining us on our 2022 third quarter conference call. Again, I’d like to note that we have made certain supplementary information available on our website at gibsonenergy.com. As always, if you have any further questions, please reach-out to us at investor.relations@gibsonenergy.com.
Thank you. Have a great day and thanks for your support to Gibson.
Operator
Thank you, sir. Ladies and gentlemen, this does indeed conclude your conference call for today. Once again, thank you for attending. And at this time we do ask that you please disconnect your lines. Enjoy the rest of your day.
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