Gibson's (GBNXF) CEO Stew Hanlon on Q2 2014 Results - Earnings Call Transcript

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 |  About: Gibson Energy, Inc. (GBNXF)
by: SA Transcripts

Gibson Energy Inc. (OTC:GBNXF) Q2 2014 Results Earnings Conference Call August 7, 2014 9:00 AM ET

Executives

Tammy Price - Vice President, Investor Relations and Corporate Development

Stew Hanlon - President and CEO

Don Fowlis - Chief Financial Officer

Cam Deller - Manager, Investor Relations

Analysts

Steven Paget - FirstEnergy

David Noseworthy - CIBC

Carl Kirst - BMO Capital Markets

Robert Hope - Macquarie

Robert Kwan - RBC Capital Markets

Matthew Akman - Scotiabank

Robert Catellier - GMP Securities

Ashok Dutta - Platts

Operator

All participants, please standby, your conference is ready to begin. Good morning. And welcome to the Gibson Energy 2014 Second Quarter Results Conference Call in which management will review the financial results of the company for the three months ended in June 30, 2014.

During today's call, forward-looking statements maybe made. These statements relate to future events or the company's future performance in which use words such as expect, should, estimate, forecast, believe, or similar terms.

Forward-looking statements speak only as of today's date and undue reliance should not be placed on them as they are subject to risk, to uncertainties, which could cause actual results to differ materially from those described in such statements. The company assumes no obligation to update any forward-looking statements made in today's call.

Any reference during today's call to non-GAAP financial measures, such as adjusted EBITDA, pro forma adjusted EBITDA, or distributable cash flow in a reference to a financial measure, excluding the effect of certain items that could impact comparability.

For further information on forward-looking statements are non-GAAP financial measures used by Gibson, please refer to the 2014 second quarter Management Discussion and Analysis issued yesterday by the company, and in particular the section entitled Forward-Looking Statements and Non-GAAP Financial Measures.

All financial amounts mentioned in today's call are in Canadian dollars unless otherwise stated.

I would now like to turn the meeting to Tammy Price, Vice President of Investor Relations and Corporate Development. Please go ahead.

Tammy Price

Thank you, Marie, and thanks everyone for joining us this morning. Joining me on the call today are Stew Hanlon, President and CEO; and Don Fowlis, Chief Financial Officer. The format for the call will be that Stew will provide an overview of our results and Don will highlight some key items regarding our financial position and capital spending. This will be followed by a question-and-answer session. Cam Deller, our Manager, Investor Relations and I will be available after the call to answer analyst's modeling questions.

With that, I'll turn it over to Stew.

Stew Hanlon

Thanks, Tammy, and good morning, everyone. I'm pleased to have this opportunity to update you on our second quarter results, which are highlighted by an increase in overall segment profit of 3% over the three months ended June 30, 2013.

Strong year-over-year segment profit gains across all of the business units factored into this outcome, with the exception of our Marketing business, which returned to more normal segment profit levels, which consistent with the point of view communicated on our first quarter call.

I will now discuss the individual segments in some more detail. As mentioned, our Marketing business returned to more normal profitability levels at $13 million for the quarter, reflecting reduced volatility in the marketplace.

This resulted in marketing segment profit of $39 million for the first half, in spite of lower available per barrel margins for the second quarter of 2014 as compared to 2013, sales volumes for crude oil and diluent increased by 21% in the second quarter of 2014 versus the second quarter of 2013.

This reflects our continued focus on bringing volumes to the company's integrated assets, while ensuring that we have positive margin on every barrel we buy without taking on any significant commodity price risk.

Segment profit in our Terminals and Pipelines business was $25 million in the second quarter, a 12% increase over the same quarter in 2013. This improvement versus 2013 was largely due to a 23% year-over-year increase in volumes at the company's terminals, including our injection stations, largely due to the impact of additional customers with dedicated tankage which came into service in late -- in 2013.

Of note, volumes at Hardisty and Edmonton were down slightly in the second quarter of 2014 as compared to the first quarter of 2014 due to reduced marketing volumes at our Hardisty terminal and reduced volumes at Edmonton related to some assets which have been temporarily taken out of service to accommodate the construction taking place in support of our storage optimization project.

The Hardisty unit train was successfully commissioned at the very end of the second quarter and volumes will begin to ramp up in accordance with customer agreements over the course of the next few months, reaching full run rate EBITDA in the fourth quarter.

Some costs related to the start-up of the unit train were reflected in the segment profit for Terminals and Pipelines in the second quarter, dampening profitability somewhat, efforts to market the Phase 2 of the unit train will commence now that the first phase is operating.

With respect to the development of Hardisty East, the first two tanks out of the six currently under construction are expected to be commissioned near the end of the third quarter or at the beginning of the fourth quarter.

These first two 400,000-barrel tanks will start contributing fourth quarter -- contributing to fourth quarter segment profit, slightly ahead of the schedule which we previously provided.

Segment profit in our Environmental Services business of $22 million in the second quarter of 2014 improved as compared to the $19 million in the same quarter of 2013. This year-over-year gain was driven in particular by improved results from our Canadian facilities and by the positive impact we experienced from our U.S. operations due to increased demand for our services in the Anadarko basin and in the Gulf of Mexico.

We expect modest improvement to continue in this segment throughout the remainder of the year. Additional growth in this segment will come from the North Dakota Bakken landfill, which should be commissioned by the end of the third quarter, with the associated PRD, Processing Reclamation Disposal facility coming on-stream before the end of the year.

Also, several smaller expansion projects at the Canadian PRD facilities started generating segment profit at the end of the second quarter and others are scheduled to start-up over the second half of this year.

The Propane and NGL Marketing and Distribution segment delivered a $700,000 increase in segment profit in the second quarter versus last year and it is well ahead of 2013 on a six-month basis, due to significant contribution from the first quarter of 2014. Commercial and industrial volume demand has shown growth on both a quarter-over-quarter and half-over-half basis, partially due to the Stittco acquisition. This coupled with increasing margins and increasing other retail revenue has contributed to the increase in segment profitability.

The recently completed acquisitions of Cal-Gas and Stittco will have a significant effect on results for this segment throughout the remainder of the year but particularly in the fourth quarter as colder weather starts to arrive.

Segment profit from our Processing and Wellsite Fluids business was relatively unchanged in the second quarter versus the same period of last year. The turnaround at our Moose Jaw facility was completed according to plan in the second quarter, which lays the foundation for a capacity expansion and associated rail loading facility expansion that will get underway in the third quarter.

Segment profit in the Truck Transportation business was $20 million in the second quarter of 2014 versus $18 million in the same quarter of 2013. Looking forward, with the typical second quarter seasonal impact behind us for this business, we expect to see stronger results for the third quarter on a quarter-over-quarter and year-over-year basis. Truck Transportation should benefit from modest improvements in both of our Canadian and U.S. marketplaces.

I'd like now to turn the focus to Gibson's capital expenditures. I'm very pleased with the progress we've made on our 2014 capital program. In the second quarter, Gibson spent $72 million on growth capital, bringing total spending for the first six months of 2014 to $161 million.

These expenditures were primarily directed towards the following key initiatives. The storage tank expansion on the east side of our Hardisty terminal, the pipeline connection to the unit train facility near Hardisty, additional salt water disposal facilities and the addition of new and the expansion of existing treating facilities in both Canada and the United States, additional trucks, tanks and equipment to meet growing demand for our retail propane activities and the acquisition of land in both Edmonton and in Alberta's heart -- industrial heartland.

As already noted, the unit train facility near Hardisty is now in service and construction has progressed a little more quickly than anticipated on the Hardisty East expansion, with two large crude storage tanks under development at Hardisty to be in service slightly ahead of schedule.

On August 1st, we closed the acquisition of Cal-Gas, Inc. after clearing the final regulatory hurdle. 2014 acquisition investment for our Canwest Propane Businesses, including both Cal-Gas and Stittco is approximately $133 million.

These two growth platforms provide extensive asset and operational synergies and an expanded geographic footprint, including new areas of focus in Manitoba, Ontario and the Northwest Territories.

Now I'll pass it over to Don, who will discuss our financial position and our recently revised growth project -- growth capital projections. Don?

Don Fowlis

Great. Thanks, Stew. Due to again strong operating cash flows and our successful debt financing completed in June, our financial position remains secure. We have ample liquidity to fund our current growth plans, including the increase we announced yesterday to capital spending expectations.

At the end of the second quarter, we had $348 million of cash on hand and $422 million available under our revolving credit facility. Our debt-to-debt plus capital ratio was 41%, our leverage ratio total net debt to trailing 12-month pro forma adjusted EBITDA was 1.8 times and our interest coverage ratio was 7.7 times.

We declared dividends of $141 million in the 12 months ended June 30, 2014, while distributable cash flow for the same period was $251 million. Thus dividends declared represented 56% of distributable cash flow and was within our targeted payout ratio range of 50% to 60%. Our next quarterly dividend of $0.30 per common share will be paid to shareholders on October 17, 2014.

As announced in our December 10, 2013 press release, we entered 2014 intending to spend $340 of growth capital and $70 million of upgrade and replacement capital. As Stew mentioned earlier, in the first half of 2014, we invested $161 million on growth capital projects. We also spent $23 million on upgrade and replacement projects. This represents a 93% increase above our capital spending in the first half of 2013.

We are well underway of executing our growth strategies, due to the seasonality and large percentage of our plan directed towards tank and terminal infrastructure, the summer and early fall months will be our largest spending periods.

We have recently reviewed our capital expense plans and have increased our estimate for 2014 to $375 million for growth capital, with no change to upgrade and replacement spending. This is primarily due to certain projects accelerating their timelines, thereby moving capital that was expected to be spent in 2015 into 2014. This is offset in part by a couple of projects where timing has been extended.

Our later investor presentation on the company website provides an update of the project by project timeline of our major growth projects. In addition, based on our current visibility for additional projects and reflecting our views of the likelihood of a multiyear build out of our Edmonton and Hardisty terminals, we are increasing our preliminary estimate for growth capital spending in 2015 to $375 million.

That concludes my comments, so I will turn it back to Stew.

Stew Hanlon

Thanks, Don. In closing, we are excited about the strong demand we're seeing for our integrated midstream solutions across our key operating regions and about the growth opportunities which represents across all of our business segments, but particularly within our Terminals and Pipeline segment.

That concludes our prepared comments. Marie, at this time, we would like to open up the call for questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) We have a question from Steven Paget from FirstEnergy. Please go ahead.

Steven Paget - FirstEnergy

Thank you. Thank you, Marie. And my question is, how much of Terminals and Pipelines revenue do you expect to be coming from inter-segment revenue in the next year or two, we have kind of -- you've kind of been between 30%, 40% in the last couple years?

Stew Hanlon

Oh! That's a great question, Steven. It’s without having the answer immediately in front of me, I would suggest that probably the proportion of revenue from inter-segment -- from internal customers will go down as we bring on the new contracted tankage at both Hardisty and later on at Edmonton.

Certainly, we can get that on a more granular basis for you. But I would say, directionally, we will be continuing to move the revenue in that business segment towards more third parties.

Steven Paget - FirstEnergy

And is the plan to always be sort of one tank ahead of customers at both Hardisty and Edmonton, that is you contract tanks and then, as you contract them, build another tank in anticipation of further contracts?

Stew Hanlon

We haven't typically done that. I can tell you that all six tanks that are currently under construction at Hardisty are spoken for and are fully contracted. In the future, it's possible that we would be endeavoring to move forward that way. These are long-term and long-lived buildouts.

Having what sort of won in the development stage at all times also allows you to take advantage of the seasonality in terms of making sure you get your several work done in the summertime that sort of thing. So I'm not saying we wouldn't do that in the future, but currently all of the tanks that we have under construction are contracted.

Steven Paget - FirstEnergy

Thank you, Stew. And how are you seeing costs, construction costs in all your sectors?

Stew Hanlon

We're not immune to cost pressures, which are a constant concern within our industry, not just today but have been throughout certainly recent history. We're able to mitigate that somewhat because the stuff we do is, don't let the engineers hear this, but the stuff we do is relatively simple.

And so, to the extent that we do kind of contract out for tank buildout, we can immediately based on the costs that we've built into the contract go in and lay in the steel, ordering the long lead-time items that sort of thing.

We're building within an established footprint and so we have a pretty good understanding of how these projects go and what they will cost. And so, we have to-date done a very good job in terms of managing our costs and bringing in projects for the most part on time and on budget.

Steven Paget - FirstEnergy

Yes. Thank you, Stew. And those are my questions. I'll get back in the queue.

Stew Hanlon

Thanks, Steven.

Operator

Thank you. The next question is from David Noseworthy from CIBC.

David Noseworthy - CIBC

Thank you. Good morning. I was wondering if we could just take a quick look at your 2015 growth CapEx and how much of that which is allocated to Terminals and Pipelines is earmarked for projects that have already been announced versus yet to be announced?

Stew Hanlon

Projects that have already been approved and are underway the 2015 growth CapEx is certainly in excess of 50% of that is in that category. The balance of the capital that we are -- that we've talked about today for 2015 is certainly very visible but these would be projects that haven't necessarily been approved or announced.

David Noseworthy - CIBC

Okay. And then, can you provide for, I guess, the portion that's not been announced and for the portion that's not part of Terminals and Pipelines, provide any color regarding kind of the timing in which you would expect cash flow from that growth CapEx to actually materialize?

Stew Hanlon

Yeah. I think we will be doing a better job of giving that specific guidance, David. I think Don, in his prepared script, did talk about updated slide in our investor deck, which will be available on our website very shortly. So, I would reference that in terms of specific -- timing of specific projects, because that certainly would cover off the majority of what we're talking about.

David Noseworthy - CIBC

Yeah. No. Fair enough. I am looking at that now and that's kind of why I was more about the stuff hasn't been announced and the stuff that's not terminals, because I think it kind of focuses on just those two elements, but, perhaps I can wait till Investor Day. And then, in terms of, given your belief that for North American production is going to continue to increase, which will increase oilfield waste and regulatory scrutiny is going to increase, therefore the need to treat that waste will increase? Is there any internally imposed limit management placing on how big Environmental Services segment grows on a relative basis or absolute basis through either growth or organic growth or acquisitions?

Stew Hanlon

There's no internally imposed specific limits. But I can say that certainly, while we expect that that business will grow. It will grow in proportion with the balance of our portfolio of integrated businesses as well.

So, I wouldn't expect that, overtime, we'll become an Environmental Services company. It will be an important aspect of our integrated service offering, but to the standards of approximately 20% of our business today, five years from now I would expect that it's going to be in that same range.

David Noseworthy - CIBC

Okay. Thank you. And maybe one last question and I apologize if you've already provided this previously? But how much incremental EBITDA are you expecting from your Stittco and Cal-Gas acquisitions?

Stew Hanlon

We don't give specific guidance in that respect, David. But I can tell you that we've disclosed that we've spent $133 million in aggregate for both of those acquisitions. We've previously talked about trying to do these acquisitions within a range of four to six times run rate EBITDA. These were somewhat more strategic call them almost bucket of acquisitions and so we were happy to get them completed near the top of that estimated range.

David Noseworthy - CIBC

Okay. Thank you very much. Those are my questions.

Stew Hanlon

Thanks, David.

Operator

Thank you. The next question is from Carl Kirst from BMO Capital Markets. Please go ahead.

Carl Kirst - BMO Capital Markets

Thank you. Thank you so much. Actually, first question I had was just sort of queuing off of propane and as we think about that, I guess, as you look in the past and perhaps apart from maybe this last winter? Can you give a sense of whether variability or the variance in the propane business is acquired if it's been more or less than what you've seen in your own business, one, just trying to kind of get a sense of that. But two, if that sort of call it historical four to six purchase range hold? Is that before synergies or after synergies?

Stew Hanlon

Those are a couple of pretty good questions. The first one with respect to variability, one of the reasons that we love these businesses, when I call them bucket list acquisitions, it's, I kind of say it with a smile on my face because these are companies that have been around for a long time and which we have long admired and in fact, have long thought about acquiring. So circumstances and timing did allow us to acquire them both within a fairly short period of time. But it's something that we have looked at.

With respect to Stittco, it's a very stable business, there are regulated aspects to it because they have a couple of regulated propane grids in Northern Manitoba, provides a lot of industrial load to mine sites in Northern Manitoba.

So, notwithstanding the fact that the business is quite cyclical summer to winter, it's very, very steady in terms of its full year EBITDA impact and so we don't expect any surprises with respect to Stittco.

And then, Cal-Gas is a business very much like our own Canwest Propane Business. It's largely predicated on servicing the oil and gas industry within Western Canada and has a fairly large industrial load as well.

I think I mentioned in my script that it gives us an exposure to the industrial business within Ontario in a small way and also gives us some increased opportunities within Alberta.

When I talk about doing these acquisitions near the top end of our previously announced guidance, we are obviously cognizant of the fact that particularly with respect to Cal-Gas there will be significant synergy opportunities and so, we look to exploit those in terms of making sure that these acquisitions do fall within those range.

Carl Kirst - BMO Capital Markets

Okay. So, there is a certain amount of synergies included within your, okay, I just wanted to make sure we didn't get over these?

Stew Hanlon

I appreciate that.

Carl Kirst - BMO Capital Markets

The second, this would maybe just be a clarification for, Don, as you are going through the financial side and talking about the ample liquidity and clearly, you guys have got an undelivered balance sheet arguably? When we think about now the $130 million of M&A plus the organic spend, as you look through 2015 with the current budget? Is your debt to capital ratio as you kind of pro forma get out to 2015? Do you still feel pretty comfortable or do you start getting into the gray zone here where there may need to be some equity support?

Don Fowlis

That's a great question as well, Carl. If you look at our statements, we did have $328 million, I think on the balance sheet at the end of June, partially the Cal-Gas acquisition was delayed a couple of months from a regulatory standpoint, so it closed at the end of July. So $100 million of that went away so to speak leaving us $200 million.

The intention when we went to the market, on the debt market in June was to prefund our ‘15 -- ‘14 and ‘15 growth capital spending. So we don't anticipate any need for equity based on our current growth plans. And we don't anticipate any need to go back to the debt markets. We think we have ample liquidity between our cash on our balance sheet, our operating free cash flow and our revolving credit facility.

Carl Kirst - BMO Capital Markets

Excellent. Thank you for that. And then, last question if I could and Stew, understanding that we just sort of -- you got the base up and running and now we're looking at potentially doubling Hardisty and obviously great to hear. Is there any more color you can give us on either what the incremental invested capital or a recurring leverage might be as far as being able to build off the base as well as is this something that you're seeing the market and you're trying to quickly fill the need? Are customers coming to you, and so you're reacting to that? And then, ultimately, I'm trying to kind of get a sense of timing as to when you think you might have response from customers as to how viable this could be?

Stew Hanlon

So with respect to the first question, what does this do in terms of us being able to leverage off of the existing infrastructure. There will be some leverage. Although there is a fairly significant expenditure of capital related to the doubling of the capacity here. Probably less so on the rail side, on the U.S. development side although they have additional tankage -- or additional targets delay and then additional rail rack to build.

They can certainly take advantage of some of the loop track that they've built et cetera. On our side, it will be not a doubling of the related infrastructure but certainly a significant project for us. So the leverage will be there. But it's not as if it's just flipping a switch or increasing pump size.

With respect to the second question, are we trying to get ahead of the market. I would say that it's probably the latter part of your question. We had, as I think I'd indicated previously, been receiving fairly significant inbound interest with respect to an expansion of the Hardisty facility. We are reacting somewhat to that. We are also -- we're also of the fundamental belief that this is the right facility in the right place and so the demand should be there.

In terms of timing, we'll typically move ahead when we have these things fully locked up in terms of contractual commitments. And so it's not just an expression of interest, it's actually sitting down and negotiating the long-term contracted demand for volume. And so, I would expect that over the next couple of quarters we'll do that and by the end of the year we should be in a position to announce that we'll be proceeding.

Carl Kirst - BMO Capital Markets

Great. Thank you for all the color.

Stew Hanlon

Thank you.

Operator

Thank you. The next question is from Robert Hope from Macquarie. Please go ahead.

Robert Hope - Macquarie

Good morning.

Stew Hanlon

Good morning, Robert.

Robert Hope - Macquarie

Maybe just a follow-up on Carl's question. Is the expanded scope at the Hardisty unit train terminal, is there a contemplation of a diluent recovery unit at Hardisty right now?

Stew Hanlon

One is not predicated on the other although certainly a DRU would be -- could be very supportive of continued growth for crude by rail. What I can say with respect to a DRU is we continue to explore the feasibility of those facilities, both at Hardisty and at Edmonton. We're working with various counterparties with respect to those facilities. This is not a simple endeavor in terms of -- it's not only just the process unit, but it's making sure that you've got all the related infrastructure. You've got an adjacent home for the diluent, et cetera, et cetera.

So certainly if you look at our 2015 capital plans and I talk about the visibility of the capital that we're spending in 2015. We haven't factored a DRU into those numbers today. But it's certainly -- the projects at both Hardisty and Edmonton are under active consideration.

Robert Hope - Macquarie

Maybe just a clarification on that last point. So, does that infer that expansions of your rail at Edmonton and Hardisty are now in your revised 2015 capital budget?

Stew Hanlon

No, sorry, but that would be -- that wouldn't be an implication you should make.

Robert Hope - Macquarie

Okay, just wanted to confirm. And then, maybe moving on to Environmental Services, just a clarification on your comment on improvement, moving forward. Is that quarter-over-quarter, year-over-year and is that being driven just by your base business there, or do we assume that there will be kind of a return to -- a bit of a pickup in your exploration support services?

Stew Hanlon

The back half of the year for ESS is looking more positive certainly than it has through the first sort of year and a half that we've owned the legacy OMNI business. And so exploration support services should be a more constructive part of the portfolio as we go forward.

But it's really we're just seeing continued improvement across that business, both in Canada and the United States and continued sort of organic buildout. I talked about the PRD and landfill coming onstream in North Dakota between the third and the fourth quarters of this year, that sort of thing. So it's just a business that we are growing out, as we had indicated we would.

Robert Hope - Macquarie

Okay, and then just one quick question and I'll jump back in the queue. Marketing, we're a month into Q3 right now, volatility's still low, projections are still tight there. Are we assuming that Q2 marketing levels should follow into Q3?

Stew Hanlon

Yes, we indicated in our prepared comments that when we -- what you saw in the second quarter was a return to more normal profitability. Certainly we're looking at Q3 in terms of it being normal in terms of profitability and the back half of the year. We don't see any reason that it should skew dramatically up or down.

Robert Hope - Macquarie

All right. Thank you.

Stew Hanlon

Thank you.

Operator

The next question is from Robert Kwan from RBC Capital Markets. Please go ahead.

Robert Kwan - RBC Capital Markets

Good morning. Stew, I just want to first come back to the rail at Hardisty. And you might have already answered this or maybe just even directional commentary. Just given that you're leveraging off of a lot of existing infrastructure, notwithstanding that there will be material spend. Are you willing to shorten up the length of the contracts if you can get some high-quality customers in or accept at least a modest reduction in the level of contracting, again since at least comparatively less capital will be going out the door?

Stew Hanlon

I wouldn't want to start negotiating over the phone, Robert. No, I don't think we'll -- I don't think we would have the need to change the viewpoint that we have with respect to the way we contract with our customers. I think we are able to and have throughout our history, struck a nice balance in terms of what we need in terms of the level of commitment and what we expect our customers to give within the range that they would remain comfortable.

I'd also suggest that a lot of the customers that we are talking to and dealing with would be interested in at least as long a term, if not longer, simply to allow themselves to have surety of access to the infrastructure as we go forward. So that's not a point of view that we have or that we would expect we would need to have.

Robert Kwan - RBC Capital Markets

Okay. And your confidence kind of in that statement is that more driven strategically how you want to contract just generally across your assets or is that really a function of some more detailed discussions with the customers giving you confidence that you're just going to get to where you want it to be anyways?

Stew Hanlon

Yes. Like I'd indicated previously, we have -- we are in receipt of reasonably significant inbound interest even before we announced that we were going to be marketing the second phase of the facility. We think it's the right facility in the right place. And, over the long-term, it's going to be one of the premiere places for people to access rail and move their barrels by rail, that’s Hardisty.

Robert Kwan - RBC Capital Markets

Okay. If I can just turn to terminal expansion in the U.S. Certainly you've used the OMNI platform to kind of build out a number of the smaller terminals there. You looked at a potential larger site in the Gulf a while back. I'm just wondering, is there anything on the radar that you see as being particularly promising? And what type of products do you think a terminal expansion in the U.S. might -- endeavor might cover?

Stew Hanlon

That's a great question. It continues to be, as we'd indicated -- have indicated previously, something that we would desire in terms of building out larger-scale infrastructure within the United States. We believe, especially in light of the significant competition around acquisitions that we would face from MLPs, that that will need to be done more on an organic basis as opposed to on an acquisition basis.

And so, we continue to work on several what we think are promising opportunities. Nothing to report today in terms of we're going to announce some buildout here or there. But particularly now that we have the unit train facility up and running at Hardisty, we have indicated to the marketplace that we have taken back a small portion of that capacity -- of the capacity for that facility, for our own account.

That gives us the ability to now directionally purpose Canadian -- Western Canadian barrels into specific locales within the United States. And I think that gives us more leverage with respect to potentially building out infrastructure there. I would characterize our state of progress there as being very much like the DRU. We haven't factored that into our capital spend profile for 2014 or 2015, but we remain optimistic that we will be able to move forward.

Robert Kwan - RBC Capital Markets

Okay. Just the last question, Stew, you mentioned in the prepared remarks around Moose Jaw coming, kind of the turnaround, some expansion potential, and both -- I guess with capacity, but also on the rail side. Just wondering if you can give a little bit more color around that?

Stew Hanlon

Sure. So, we have slowly been -- by increment, increasing the capacity of our Moose Jaw facility. We're currently sort of nameplate, 18,000 today. It is depending on the ambient temperature outside and stuff like that. It runs in that range when we're making straight run roofing flex.

We are embarking on an expansion of both the rail loading facility at our Moose Jaw facility as well as a further debottlenecking of the facility. And I think that between now and this time next year, we'll be able to add maybe an additional 10% or so to the capacity of the process unit. And we'll be able to greatly improve our ability to move not only the asphalt products but the resultant drilling and completion fluids by rail, which will improve the margin and profitability of the facility as well.

Robert Kwan - RBC Capital Markets

Okay, that's great. Thank you very much.

Stew Hanlon

Thank you.

Operator

Thank you. The next question is from Matthew Akman from Scotiabank. Please go ahead.

Matthew Akman - Scotiabank

Hi, good morning.

Stew Hanlon

Good morning, Matt.

Matthew Akman - Scotiabank

Stew, I just wanted to, in light of the acquisitions that were announced in the quarter in propane, and then previously in OMNI. I just wanted to understand your commitment to the business mix. And it feels like there is this great organic growth in terminal, the infrastructure business, but that through acquisition, it feels like there's a commitment to maintaining a very balanced business mix between these segments, including services and trucking, as well. And I'm wondering if that's kind of an intentional strategy and commitment that you have or if these acquisitions are just sort of opportunistic and just happen to come up in these segments at these times?

Stew Hanlon

That’s a great question, Matt. We had talked about -- we have talked in the past about our commitment to the balance within the portfolio. Now, having said that, the skewing of our capital, as you've seen over the last few years has been certainly towards the longer-term, more heavily contracted infrastructure, both at Hardisty and Edmonton. And we'd love to, as I'd mentioned in the previous answer, replicate that somewhat in the U.S.

But we remain committed to each of the businesses within our integrated portfolio. We believe that they are very complementary and they provide stability throughout the cash flow stream and provide us with multiple avenues and opportunities to grow the business. So it allows us to be pretty disciplined with respect to our capital allocation.

So I'd use that last comment about discipline to answer the second part of your question. The acquisitions that we completed in the quarter were both opportunistic but also strategic. Like I said, they've been -- both of those companies had been on our radar screen, in the case of both Cal-Gas and Stittco, for literally over a decade, just waiting for the owners of the businesses to be in a position where they were ready to sell. And so, it's not as if these things just kind of tripped across our radar screen.

We had long -- for a long period of time looked at both the businesses, recognized that they would fit well within the propane business. And when they were ready to -- when the owners of the businesses were ready to sell, we were ready to acquire. So we're not going to -- I guess to draw a really terrible analogy, and I apologize. But we're not sitting with a gun by the side of the road, waiting for an animal to walk by. We actually went into the woods and hunted these ones for a purpose.

So answer your question without rambling too much, we believe in the balance of the business and we're going to grow all of our businesses. You can expect the terminals business or the infrastructure business to grow from 20% of the pie to 35% to 40% of the pie over the next three, four years as we continue to skew our capital more towards that business and go forward that way.

Matthew Akman - Scotiabank

Well, just as one follow-up, I'm wondering where Moose Jaw processing, refining, whatever you want to call it, fits into that because it is one area where there was an attempt for a significant expansion and now there's a modest expansion. But it seems to be lagging in its overall fit within the company in terms of size and scale. And I'm wondering if that's one where you see it as less core or maybe even to fall on your analogy, maybe it's an animal that you'd let out of a cage as opposed to trying to hunt it down.

Stew Hanlon

Yes. We believe that Moose Jaw fits well within the portfolio. It doesn’t provide significant support for trucking the wellsite fluids. We integrate the output from the [Technical Difficulty] into our terminal infrastructure within Alberta. That does drive additional marketing and transportation opportunities, that sort of thing.

In fact, the wellsite, the drilling and completion fluids, to the extent that you now are on the wellsite and you're providing those fluids. And they come back as a contaminated stream, they fit back into the Environmental Services business. And so there is a fair bit of cross-synergy there.

The business we've owned now for 12 years, we've grown it from being a seasonal asphalt-only -- road asphalt-only plant to being the integrated business that it is today. And so nothing is forever but we certainly don't have any plans to let it out of its cage any time soon.

Matthew Akman - Scotiabank

Okay. Thanks very much. Those are my questions.

Stew Hanlon

Appreciate it, Matt.

Operator

Thank you. The next question is from Robert Catellier, GMP Securities. Please go ahead.

Robert Catellier - GMP Securities

Hi, good morning. Most of my questions have been answered. So these are really just follow-ups and clarifications here. But on the propane, the $130 million or so of acquisitions you've made is a pretty decent amount, both in general and relative to the size of that segment. So I'm wondering if you could elaborate a little bit on your appetite for making more acquisitions there. And specifically, I'm thinking whether or not Cal-Gas and Stittco lend themselves to bolt-on acquisitions now that you have them under your ownership?

Stew Hanlon

I guess, Robert, when we look at the landscape within the propane business and our sweet spot, if you will, is Western Canada, it's oil and gas, it's industrial, et cetera. We like the size of the business that we have now, we believe it gives us a good -- the ability to be competitive within that space. So I would say that we don't have any further acquisitions, certainly nothing of that size on the radar screen.

In terms of moving via acquisition into additional geographies, as you'd mentioned, these are, for the propane business, pretty sizable for us. And so we're going to spend our time and make sure that we fully integrate the businesses and utilize them appropriately.

So I'd say that we continue to look forward to growth within the market, within Western Canada, because it does grow as additional oil and gas activity happens as additional industrial buildout happens across Western Canada and now into the industrial heartland within Ontario, as well. So I would say that our focus is going to be on integration and organic growth within that space as we go forward in the near future anyway.

Robert Catellier - GMP Securities

Okay. So then, to qualify, I guess just summarize your comments, then you see the strategic value of these acquisitions, not only the geographic reach but also the scale within the existing markets.

Stew Hanlon

Yes, that's a fair characterization, for sure.

Robert Catellier - GMP Securities

And then, just again on the capital spending plans, I guess you followed your pattern of doing sort of a mid-year raise to the capital plan without actually coming in with a simultaneous project announcement. And if I piece together all the comments you've made today, you're still focused on the terminals. But it seems to me that there's a plethora of opportunities sort of here, there and everywhere. So I'm wondering if you could just summarize where maybe the strongest opportunities are and if there's any surprises relative to your recent history?

And then, sort of as an adjunct to that, to follow-up on the DRU comment. As you go through your feasibility work there, what do you perceive to be sort of the critical milestones or gating factors? Is it more a question of making sure that the related infrastructure is in place or is it more a question of customer demand?

Stew Hanlon

With respect to the allocation of our capital as we go forward and whether it's going to be sort of more of the same or whether there are any sort of outliers or things that might surprise the market as we go forward. We don't think we're going to surprise anybody with respect to the specific allocation of the capital we've talked about today.

The majority of it, I think we've mentioned about 70% of the capital over '14 and '15 is going to be related to infrastructure and fully 50% or more of the capital that we have outlined for 2015 has been announced and those projects have been approved. So I don't think that we will surprise anybody with respect to the allocation of capital.

With respect to the question around DRU, there are a significant number of gating items for a project like that, related both to the associated infrastructure, what do you do with the diluent that you knock out of the diluted bitumen? You have to have an adjacent home for that.

Related to the quality of the deal bit that you want to run through the facility, what's the time for the crude, how much -- what's the appropriate metallurgy within the process unit, et cetera, et cetera. So, it's not an easy thing to sort of move forward on because there are a number of questions that you have to answer before you can be absolutely confident it's going to be a successful project.

And so, we are working with counterparties, including potential customers both at Hardisty and Edmonton with respect to answering -- not only answering all those questions, but also in terms of having a sufficient commitment in terms of backstopping of capital contractually before we would move forward. And so, like I said, we continue to make progress, but we're certainly not in a position to announce anything yet.

Robert Catellier - GMP Securities

So, if I take -- just listening to you talk about that, Stew. It sounds to me like this is a type of project that fits well to partnering with a customer because of maybe their knowledge of the crude stream and their needs. Is that realistic at this point?

Stew Hanlon

Yes. We're still not a producer and so we would be building these facilities in order to serve our producer customers. And so certainly we have been partners with our customers in the past and we expect to be partners with our customers in the future. We think we're good partners. And so that's certainly an aspect that we would be willing to contemplate as we move forward.

Robert Catellier - GMP Securities

Okay, that's it for me. Thanks.

Stew Hanlon

Thanks, Robert.

Operator

Thank you. The next question is from Ashok Dutta from Platts. Please go ahead.

Ashok Dutta - Platts

Hi, Stew.

Stew Hanlon

Good morning.

Ashok Dutta - Platts

Actually -- morning. I had a couple of questions regarding DRU but I presume you have answered all of them. But just switching gears to the phase 2 of your Hardisty terminal, you have announced an open season. Is there any kind of timeline as to when that's going to close?

Stew Hanlon

It's more that we have announced that we are now willing to talk to potential counterparties with respect to moving forward on additional contracts. We'd specifically not wanted to entertain discussions with prospective to the second phase of the unit train. Because I wanted everyone laser-focused on making sure that the facility was delivered on time and on budget, happy to say that both of those occurrences came to pass. So we don't have a specific timeline. I think I'd mentioned in response to a previous question that we would expect that within the next couple of quarters and so probably by the end of the year, we'll be in a position to announce a go-forward.

Ashok Dutta - Platts

Thank you.

Operator

Thank you. We have a follow-up question from Steven Paget from FirstEnergy. Please go ahead.

Steven Paget - FirstEnergy

Thank you, Marie. Stew, you talked about a bucket list. I don't want to talk about the bucket, just the list. Maybe what other kind of businesses might be on that list? Specifically, could there be another Processing and Wellsite Fluids, high-margin products-type business, say in the U.S. that might interest you because it could support Taylor Trucking there, following up on your previous answer?

Stew Hanlon

We've thought about that, Steven, and have purposely looked for facilities that might be very much like Moose Jaw or might be complementary to our existing businesses within the United States. Moose Jaw's a bit of a unique animal. It's in the right spot in terms of the types of crude that are adjacent to it.

The crude slate that we run makes us particularly good straight run roofing flex, which allows us to have a ratable takeaway with a contracted margin for the asphalt product, which allows us then to exploit the higher margin top half of the barrel. So never say never, certainly we don't have anything like that on our radar screen today.

Steven Paget - FirstEnergy

Thank you, Stew. Happy hunting.

Stew Hanlon

Thanks, Steven.

Operator

Thank you. The next follow-up question from Carl Kirst from BMO. Please go ahead.

Carl Kirst - BMO

Thanks. I appreciate the follow-up. This might be more of a micro question, but have the injections from Polaris started? And I didn't know if you can -- I mean, whenever that does start, if you could give us a sense of how material do you think that might be with respect to your marketing opportunity?

Stew Hanlon

The answer to the first question is no. Injections haven't started. Interpipe is still in the process of building out the connection between the industrial heartland and our Edmonton facility. Although the injection station that they have built is largely complete on our facility.

With respect to materiality, we're still in contract negotiations phase with some of the committed shippers to Polaris with respect to how the -- what the related infrastructure that will feed the initiating station for Polaris looks like. And so, it'd be premature for me to sort of talk in terms of magnitude or scale. But certainly we look forward to addressing that and updating the market when we're ready to make a commitment.

Carl Kirst - BMO

Understood. Appreciate the color.

Operator

(Operator Instructions) We have a follow-up question from David Noseworthy from CIBC.

David Noseworthy - CIBC

Thank you. Just a quick question on marketing. I guess I understand that things have gone back to normal but I was trying to figure out what exactly has gone back to normal. When I look at kind of what crude prices have done year-over-year, they've gone up. When I look at differentials, they're flat to up, at least depending on which ones you're looking at. And so, maybe therein lies the answer to my question. But what are you looking at that has returned to normal and hence why we've seen marketing margins return to normal?

Stew Hanlon

That's a great question. And we get asked this question often because people are trying to figure out how they can model marketing. And the answer we always give them is, because we're typically trading and managing the quality around non-marker grades or non-headline grades, it's really difficult. We see things within the marketplace because we're in the marketplace every day that are just not visible unless you're there.

Specifically just to try and answer your question, I would talk about it this way. What you've seen is less volatility in overall differentials movements over the last quarter in particular. And less volatility is an indication that there's less chaos in the marketplace. When you see volatility with respect to differentials that means that something has gone on with respect to access to markets, with respect to either disruptions in production or excess production to a marketplace.

You might have refinery turnarounds that aren't expected, et cetera, et cetera. And what we're seeing is we have pretty good access to markets. And we've seen dampened volatility, which means that we're not able to take advantage of sort of spot opportunities because they just haven't been there.

And so when we talk about a return to normal profitability, that's really what we're talking about. We're talking about that day-to-day base business that ought to be there irrespective and is absent sort of any spot opportunities that we can take advantage of because of increased volatility.

David Noseworthy - CIBC

Then, maybe just a follow-up to that, would you expect that your rail terminal at Hardisty and the central expansion thereof that to take some of the “chaos” out of the market going forward?

Stew Hanlon

That's a very, very astute observation because the answer is yes. More access to market means that producers have more optionality, which means that they're not as dependent on the existing sort of routes out of town or routes to market. And so particularly as we move increasing numbers of heavy sour disadvantaged barrels on our rail car, that will provide producers with hopefully enhanced netbacks and that should have the impact of reducing volatility somewhat.

David Noseworthy - CIBC

So at least you're taking advantage of the reduced chaos?

Stew Hanlon

We're just providing a necessary service for our customers.

David Noseworthy - CIBC

Perfect. Thank you very much. Those are my questions.

Stew Hanlon

Thanks, David.

Operator

Thank you. There are no further questions. I would now like to turn -- hand the call back to Ms. Tammy Price.

Tammy Price

Thanks again for your interest in Gibson Energy. As mentioned earlier, Cam and I are available after the call if there are more questions. Have a good day, everyone.

Operator

Thank you. The conference has now ended. Please disconnect your lines at this time and we thank you for your participation.

Stew Hanlon

Thank you, Marie.

Operator

Thank you.

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