Gibson Energy Inc

TSX:GEI

Earnings Call Transcript 2022-Q1

[Operator]

Good morning, ladies and gentlemen, and welcome to Gibson Energy's First Quarter 2022 Conference Call. Please be advised that this call is being recorded.

I would now like to turn the meeting over to Mr. Mark Chyc-Cies, Vice President, Strategies, Planning and Investor Relations. Mr. Chyc-Cies, please go ahead.

[Mark Chyc-Cies, executive]

Thank you, operator. Good morning, and thank you for joining us on this conference call discussing our first 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.

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 I'd like to turn the call over to Steve.

[Steven Spaulding, executive]

Thanks, Mark. Good morning, everyone, and thank you for joining us today. I'm pleased to say we're having a solid start to 2022 in both our infrastructure and marketing segments with each coming in slightly ahead of our budgeted estimates. Our adjusted EBITDA of $121 million and distributable cash flow of $79 million are strong results. These have further strengthened our payout and leverage ratios of 68% and 2.7x, both being below our target range.

Given our solid financial position, we've been able to increase our return on capital to shareholders. So far this year, we increased our dividend by 6%. We've also bought back roughly $22 million in shares. Our focus remains on deploying $150 million to $200 million in growth capital each year. To reach this range this year, there'll be a combination of tankage, DRU phases and energy transition projects. This mix will move around each year.

If you look at the $1 billion or so in capital we've deployed over the last 4 years, less than half of that capital was tankage. Our target of $150 million in capital for this year is really lagging effect of a slowdown we've all seen in our sector during COVID. As a result, it is a contingent on timing of sanctioning additional projects throughout the balance of the year. As we look forward, we remain confident that the discussions we're having today will enable us to deploy $150 million to $200 million, if not more, if some of the larger opportunities we are pursuing materialize.

On the DRU, we continue to see strong economics for the DRU value chain relative to pipelines, and we expect these fundamentals will remain well into the future. This outlook is informed by the strong market for crude ConocoPhillips is moving to the U.S. Gulf Coast and how refining customers are seeing a meaningful improvement in refinery runs versus dilbit. This is helping us advance discussions for additional phases and it's a major focus for us right now.

Discussions continue for tankage at Edmonton and we believe Gibson is very well-positioned to support shippers on TMX, optimize their crude netbacks and meet stream requirements. Continuing on at Edmonton, I'm happy to announce that our Edmonton terminal we placed in service the biofuel blending project last month. The project was delivered ahead of schedule and on budget. And it was sanctioned early last year under the -- our MSA with Suncor, our principal customer at the terminal.

Capital costs on that project was roughly 1.5x a tank, and it's under a 25-year term. It's ESG-positive and aligned with energy transition. We believe we will continue to build out additional infrastructure at Edmonton under this MSA to support Suncor's need in energy transition fuels over the coming years. More broadly, we would stress we're very focused on pursuing energy transition-aligned infrastructure opportunities. We want these opportunities to leverage our existing skill sets. We see these types of opportunities representing an increasing proportion of our capital projects over time. We believe energy transition as a significant infrastructure investment opportunity for us.

We put together an energy transition team to identify and develop opportunities in this space. And we're working on several projects, currently, mostly in the renewable diesel value chain. If we're successful, we would expect these to generate very attractive risk-adjusted returns for our shareholders and likely push us back to that $300 million in growth capital per year that we were at prior to COVID. These are very interesting opportunities, but there's still a lot of work to be done shifting to ESG, an area we always continue working to move forward.

During the quarter, we were awarded the Bronze Class of Distinction in the S&P Global 2022 Sustainability Yearbook. With only 4 companies globally receiving a metal distinction within the oil and gas, storage and transportation industry we were pleased all of our work continues to be recognized by rating agencies as it provides external confirmation that we are meeting our goal of being a sector leader in ESG. We believe Gibson is a great fit for the ESG-minded investor. We have the lowest carbon intensity of our peers and the steps we have taken have earned us sector-leading ESG ratings.

To close, we feel we've had another strong quarter and a great start to the year. Our infrastructure business was ahead of our budgeted expectations. Marketing came in slightly ahead of our outlook. Our financial position is very strong, which has allowed us to return more capital to our shareholders, and we're excited about our opportunity to continue to grow both within our existing business lines and through energy transition.

I will now pass the call over to Sean, who will walk us through our financial results in more detail. Sean?

[Sean Brown, executive]

Thanks, Steve. As Steve mentioned, another solid quarter really across the board. Both our segments came in ahead of our expectation as did adjusted EBITDA and distributable cash flow. Infrastructure adjusted EBITDA of $109 million, which was a $3 million increase from the fourth quarter of 2021 was slightly ahead of our expectations. This was driven by increased volumes at both the Hardisty Terminal and on our Canadian pipelines, driving higher revenues. Comparing this quarter to the first quarter of 2021, wherein the adjusted EBITDA figure was effectively in line the first quarter of last year benefited from a onetime accrual reversal, wherein the current quarter that was largely offset by the contribution from the DRU, which was placed into service last summer.

In the Marketing segment, adjusted EBITDA of $21 million was above our outlook range. Refined products was fairly strong in the quarter in terms of asphalt and drilling fluids. Crude marketing did see opportunities from the increased volatility, but if you think of our core strategies, it still remains a somewhat challenging environment. That being said, the $21 million earned in the quarter is very much an improvement over the $3 million in adjusted EBITDA we earned in the first quarter of last year and even a nice step up from our most recent quarter, even after adjusting for the hedging impact we saw in Q4.

In terms of our outlook for marketing, we would expect the second quarter to come in at between $10 million and $15 million in adjusted EBITDA, which is somewhat in line with this quarter after adjusting for the expected impact from the turnaround we need to perform at Moose Jaw, which we expect will begin in the next week or so. Recall that we are able to avoid having to perform a turnaround last year, which was a win for us. We estimate the turnaround will take about a month, meaning not only increased costs that will reduce the infrastructure adjusted EBITDA in the quarter to the tune of about $5 million, but will also reduce the amount of barrels that refined products is able to earn a margin on.

Finishing up the discussion of the results, let me quickly work down to distributable cash flow. For the first quarter, we reported $79 million, which was a $15 million increase relative to the first quarter of last year. When you look at it on a line-by-line basis from adjusted EBITDA down to distributable cash flow, it is very much comparable on each, with the primary driver of the improvement being the fact that last year's adjusted EBITDA included the previously mentioned onetime accrual reversal, which was noncash and would not have contributed to distributable cash flow.

And so on a trailing 12-month basis, for the third consecutive quarter, both adjusted EBITDA and distributable cash flow increased relative to the prior quarter as we again posted a stronger quarter than we are rolling off. As a result, our payout ratio sits at 68%, which is below the bottom end of our 70% to 80% target range. Our debt to adjusted EBITDA decreased to 2.7x, which is below our 3 to 3.5x target. And on an infrastructure-only basis, our leverage would be 3.2x and our payout ratio would be approximately 68%, where we seek to be below 4x and 100% respectively, under our financial governing principles.

And speaking further to our financial position, we continue to maintain a fully funded position with ample cushion. Between our credit facilities and cash on hand, we had approximately $800 million of available liquidity as at March 31. Also, as part of being proactive to maintain our financial flexibility, we just finished extending our sustainably linked credit facility to a full 5 years now maturing in 2027.

Since the start of the year and very much reflecting our strong financial position, we have now bought back $22 million in shares with the ability to continue to do so through the balance of the year. I will stress that we don't seek to be formulaic or prescriptive in terms of timing or size of potential buybacks. However, we fully appreciate the market will likely judge companies on execution rather than intention. And on that basis, we very much see our buybacks to date as a very good start.

In summary, a great start to the year. Results from the infrastructure segment were strong, and marketing was above our outlook range. From a financial perspective, we remain in a very strong position, being below both our leverage and payout target ranges, remaining fully funded with ample cushion with significant available liquidity. And we continue to be of the view that our business offers a strong total return proposition to investors with visibility to continued growth in our high-quality infrastructure cash flows and attractive dividend that we've now grown for 3 straight years, the return of capital to shareholders through share buybacks in the quarter with the expectation for additional buybacks in the future, all while maintaining a very strong balance sheet and financial position.

At this point, I will turn the call over to the operator to open it up for questions.

[Operator]

[Operator Instructions] Your first question comes from Jeremy Tonet with JPMorgan.

[Stephen McGee, analyst]

This is Steve McGee on for Jeremy. Just wanted to start with the marketing as you guys came above the previous range and with Moose Jaw turning around here, I just wanted to get your thoughts on forward look here for marketing and just going beyond that in third quarter, fourth quarter and with the $80 million to $120 million long-term range, just how you see that progressing this year?

[Steven Spaulding, executive]

We'll talk about the quarter first, Steve, we came in at just above 20% for the quarter. Some of that was carrying from last year, but we also carried some from this quarter into next quarter. So a pretty good quarter overall. We had some crude trading opportunities, but we also had really one of our stronger quarters we've had in recent memory on the actual margin side above WTI for refined products coming out of Moose Jaw. We're seeing really strong margins when it comes to our distillates there. And also, we did a lot of asphalt sales into the summer on a forward basis. So we're seeing really strong demand for asphalt, really strong demand for roofing products and really strong demand for our distillates. So on that side of the business, we're going to see really kind of strong margin compared to our typical relationship to WTI.

Now we're going to have 1 month out in the quarter, so that's pulled us back, and that's probably why we're at that $10 to $15 million that we talked about. Yes. And then I think just for the rest of the year, I think we -- the view would be that the market remains constructive, but yet challenging at the same time. So we wouldn't expect to see material differences as we move through the back half, I mean, as you know, Steve, every quarter, we provide sort of that one quarter in advanced outlook, and we'll expect we'll do that again, but really no update as we look into Q3 and Q4 as we sit here today beyond that second quarter.

[Stephen McGee, analyst]

Got it. And then on, as far as buybacks go, and I realize that you guys aren't formulaic, and I understand that and so -- but just I guess, going a little deeper because you talked about free cash flow best use for marketing going towards share repurchases. So I just wanted to, I guess, figure out exactly how that would work with the $22 million in buybacks in the first quarter. Just trying to see like is that kind of a typical cadence that maybe we might see going forward, just kind of looking at marketing results or just any thoughts around that?

[Sean Brown, executive]

Yes. No, thanks for that. I think if you go back to our capital allocation philosophy, first and foremost, obviously, remain within our financial governing principles, then fund growth capital, after that, to the extent that there's excess cash flow, then we've always said, from infrastructure, we buy dividend increases, from marketing. I mean, as part of that excess cash flow too you also need to take into account sort of total capital deployment and growth capital. So I think just simply pointing to marketing performance as a driver for buybacks wouldn't actually be accurate.

I think you need to look at the entire sort of cash flow waterfall for us. The $20 million that we made or just over $20 million, that was actually really relatively close to what we expected. So when we came out with our guidance last quarter and talked about buybacks, that's very much where we expected to be. As we move through the year, we just talked about sort of our overall view on marketing, so as we sit here and think about cadence for the remainder of the year, where we bought back in this first quarter, depending on how capital plays out for the remainder of the year, it could be a reasonable assumption, certainly.

[Operator]

Your next question comes from Linda Ezergailis with TD.

[Linda Ezergailis, analyst]

Recognizing that we are in a very dynamic environment on a number of fronts, especially with this unfortunate exogenous shock on the geopolitical front. How are you seeing any structural shifts in the crude oil markets that's changing the nature and size of opportunities for both your marketing business and other investments or is it really still too early to tell? And I guess, I'm also wondering about your discussions with customers? Is there an urgency maybe both on the energy transition front as well as energy security also becoming a bigger consideration, which might shift how and what you're doing for your customers?

[Steven Spaulding, executive]

Thank you, Linda. This is Steve. The unfortunate events have happened globally, I think that accelerated a little bit. I think the market was projected by many people to get to 125 by the middle of summer. So I think it's just -- it accelerated it some. I think fundamentally, the fundamentals are still quite sound for continued strength in crude oil and continued demand for refined products. So with that, I think where we see the kind of the first real strength is in our marketing business around Moose Jaw and refined products that I talked about earlier.

As far as growth, we do see growth. We have seen some minor growth in our gathering systems, our crude oil gathering systems especially in Canada and also down south. But there's only about 5% of our business. So we don't have a lot of torque when it comes to the actual dilbit. I would say on energy transition, we were already moving forward with energy transition, and these are the kind of long lead item projects that take a long time to put together. I don't know if that's put any more emphasis on it other than a more security that energy transition is going to happen.

Sean, would you add anything to that?

[Sean Brown, executive]

No, I think you got it.

[Linda Ezergailis, analyst]

And just as a follow-up, in terms of recognizing that there are certain things that are going to constrain the pace of energy transition and increasing security for North America and its global allies. How do you think about partnering or acquisitions to potentially pivot a bit faster to the extent you can to service those needs.

[Steven Spaulding, executive]

I think we're definitely looking at the opportunity to partnership in energy transition. So that is definitely part of our strategic plan is to do partnerships within energy transition. As far as actually M&A, we haven't done a lot of real hard search on the M&A side, mostly because of the high multiples in that business. And we think strategically that we have a really good team put together to execute these projects that we're chasing.

[Operator]

Your next question comes from Rob Hope with Scotiabank.

[Robert Hope, analyst]

Another energy transition question. Steve, in the prepared remarks, you mentioned that you want to leverage your existing skill set to go after some energy transition investment opportunities. You've had a team in place for quite some time. And how is the strategy evolving beyond the renewable fuels that, I guess, would be the first tranche of energy transition projects? Beyond that, kind of what areas of energy transition do you want to explore?

[Steven Spaulding, executive]

I think since we had the DRU, which -- and we have the Moose Jaw kind of refinery, I think probably the thing we're looking at the leading opportunity is probably an HRD facility. That's probably our leading opportunity that we're actually looking at right now, Rob. We think we have the skill sets, both on the engineering side and on the operational side and we have a pretty extensive marketing organization, too. So we feel pretty comfortable in that space. Now we do think maybe down the road, there might be additional opportunities to -- for verticals off of that, but that's still too early to really talk about, Rob.

[Robert Hope, analyst]

And then just shifting back to the DRU. It's been up and running for some time. It seems like Conoco is looking upon the project favorably. How have the other discussions for -- with customers regarding expansion gone, like is the market now accepting kind of the logistical chain and the economics of the project and now it's just kind of the nitty-gritty of the contracts or where are we in terms of contractual discussions and kind of what are the key hang-ups right now?

[Steven Spaulding, executive]

So I think ConocoPhillips is very happy with the process. I think now it's just getting this as a strategic opportunity for the rest of the kind of the Canadian heavy oil producers. They make very strategic decisions and so it does take time to put these things together and then down on the southern side, the U.S. refiners are getting more and more comfortable. And we think there's pretty significant upgrade versus the dilbit. We've been told it's anywhere from $3 to $5 uplift for the U.S. refinery.

[Operator]

Your next question comes from Robert Kwan with RBC Capital Markets.

[Robert Kwan, analyst]

Look, there's been a lot of talk about the different growth initiatives and I'm just wondering if you're able to rank order the probability of these coming to fruition over the next 12 months. You've talked about tanks for TransMountain, DRU expansions, renewable diesel and if you can also throw M&A out there, I know, Steve, you mentioned that M&A on the energy transition front isn't something that you've been pursuing. But last call, you kind of just generally brought up M&A. So when you think about those 4 things and if I've missed something, let me know. But how would you rank order the probability of that coming to fruition?

[Steven Spaulding, executive]

I would say tanks at Edmonton would probably be the highest priority, but that's going to -- that got pushed by the delay in TMX. So that's more than likely a second half type opportunity. And then I would say on the next one is the DRU. I think we're very close on a couple of opportunities. We're very close on completing some things around the DRU. And then I would say the HRD facility, we're definitely -- we're chasing several opportunities there. We feel pretty comfortable that we'll be able to land one of those.

And then M&A is always a more difficult one, Robert. So because we want to buy -- if we do something, we want to do something that we know would fit us and then it's going to kind of -- then you've got to actually find a willing seller that would do it at the price that we're going to be willing to buy at. So that's probably the longest shot, Robert.

[Robert Kwan, analyst]

Okay. That's great. And then just drilling down on the energy transition side, you talked about the potential to get back to that $300 million of CapEx per year. So that's, call it, $100 million, $150 million uplift from the target here. Is that -- when you look at the mix there, is that a bunch of small projects or are there kind of 2 or 3 chunky things and maybe it is the renewable diesel project? Like how would you characterize what would get you to that $300 million level?

[Steven Spaulding, executive]

I would say the DRU and the tankage, that's at $150 million to $200 million range, Robert. And I would say if we do something larger in the energy transition phase, that's the opportunity to kind of push us up to that $300 million range.

[Robert Kwan, analyst]

Okay. So it's kind of 1 or 2 chunky projects that are going to get you there, it's not a collection of little things you're working on?

[Steven Spaulding, executive]

Well, no, we have potential expansions there in Edmonton on the MSA, and we have some smaller opportunities at Moose Jaw and smaller opportunities at Hardisty and some gathering opportunities down in the States. So those are all $10 million and $15 million, but they do add up.

[Operator]

Your next question comes from Robert Catellier with CIBC Capital Markets.

[Robert Catellier, analyst]

A couple of follow-ups here. Can you just speak to specifically how energy security and the current level of market pricing is impacting traction in discussions on the DRU. Is it big -- energy security big consideration?

[Steven Spaulding, executive]

I haven't seen it from the U.S. side yet, Robert, as far as accelerating that energy security from the U.S. market side. I've probably seen a bigger driver really in Canada recently just for the economics alone, right, and because it does beat the pipeline economics. And so several of the shippers that were on Keystone continue to look for long-term off-take to the U.S. Gulf Coast. And so those are the ones that are probably the hottest right now, Robert.

[Robert Catellier, analyst]

Okay. That's helpful. And then just given the market volatility and the higher commodity prices, how is that impacting how you're managing the marketing business in terms of working capital and requirements and value at risk? So obviously, there, I'm talking about the crude oil marketing as opposed to the refined products.

[Sean Brown, executive]

Yes. Thanks for that, Rob. I mean, how we manage it really hasn't changed. As you'd be aware, we have a risk management committee. We've got risk policies in place. Our marketing group always adheres to that. Specific to working capital, it's a topical question, especially given this quarter, you would have seen the volume or the value of the inventory that we've been holding generally has been increasing over time. Well, the volume has been staying relatively flat. And that's just purely a function of actual commodity prices.

This quarter was a bit abnormal in the sense that inventory actually stayed relatively high, but you saw a big working capital swing, which actually drove our leverage down. That was really just a function of timing of purchases and sales. So it really was when check exchange happened and when they sold the product relative to when they bought it. So we would expect our leverage down at that 2.8%. That was a bit of a temporary phenomenon given that we're more in the range as we think about it on a run rate basis. But as a whole, really no change how we think about it.

We need to make sure that the inventory we hold, we don't get above our financial governing principles due to carrying a certain amount of inventory. We're carrying a volume right now that is not abnormal from a historical perspective. The value certainly -- as commodity prices have gone up, the value of that's gone up. But I mean that is very manageable within our governing principles as you've seen.

But I mean, from a risk perspective, there's absolutely no change. I mean our entire marketing group is operating under the guidelines and the procedures from a risk management policy. And so there really has been no change from that perspective.

[Robert Catellier, analyst]

Okay. That's helpful. And it does lead to my last question. I'm trying to balance your capital requirements versus your -- where you are in terms of leverage to sort of get to an area as to what you might repurchase in terms of continuing the activity under the normal course issuer bid. So we're into May now without any significant new project additions having been announced.

Now it sounds like there could be some in the second half, but if I understand your answer to the last question, it looks like there's a working capital requirement as well for the marketing business, just given where the prices are. So is that the way to look at it? There's probably a working capital requirement coming, you want to keep some flexibility in case you have other new projects added later in the year. So the $20 million, $22 million might not be annualized in terms of repurchases?

[Sean Brown, executive]

No, I think again, more what I was trying to refer to there, there will be a working capital requirement certainly, but it's not massive, and it really wouldn't change the narrative around that. I think to the first question answered, as we sit here today, we had a buyback plan as we entered the year. That was based on budgeted results. We did come in slightly above budget in this first quarter. We're very happy where that ended up.

Capital forecast hasn't changed as we sit here today. We always had an intention if we're going to buy back shares that it would be somewhat notable relative to the size of the company. So I think something in that $20 million to $25 million quantum wouldn't be unreasonable to expect as we move through the year with the big swing factor being at the tail end of the year is really timing of some of these capital projects that Steve talked about earlier.

[Robert Catellier, analyst]

So just to clarify, that's another $20 million to $25 million is possible through the balance of the year?

[Sean Brown, executive]

No, that would be quarterly.

[Operator]

Your next question comes from Ben Pham with BMO.

[Benjamin Pham, analyst]

I was wondering if you can frame perhaps your expectations on EBITDA growth or DCF per share growth when you think about that, your CapEx range, is that $150 million to $300 million?

[Sean Brown, executive]

Yes. I mean, it depends on what the baseline you're talking about, Ben. I mean I think the best way to answer that is, as you talked about us deploying $150 million, we would expect to deploy that at our 5 to 7 build multiple and you build up that. I mean, again, marketing is going to move around a bit. We give that guidance quarter-to-quarter. So on a consolidated basis, it makes a bit less sense but just as you think about the deployment of capital, our expectation it will continue to be deployed at that 5 to 7 build multiple. Our target for this year remains $150 million.

As we said when we put out our capital release, we still need some sanctions as we move through the year to get to that $150 million. And I think probably that's the way I'd approach that. Really just given some of the nonrecurring items that we had last year, it's tougher to take sort of a year-over-year growth number explicitly. But I think, again, we would expect to deploy this capital in a fashion that we have historically and to build off of that.

[Operator]

Your next question comes from Andrew Kuske with Credit Suisse.

[Andrew Kuske, analyst]

Steve, you made it fairly clear that M&A is a low priority for you. And I guess maybe just framing a hypothetical, do you have any kind of inclination to look at maybe legacy energy assets? Is there anything sort of tempting that maybe you could buy on a value basis and generate outsized returns, but maybe would create some contagion for your ESG side and I guess maybe a buffer on the ESG side as you're just really so best-in-class on an emissions basis relative to others or is anything along that path to sort of a no-go zone?

[Steven Spaulding, executive]

Yes, Andrew, I wouldn't say it's a low priority. What I said it was the lowest probability. That doesn't mean it's a low priority. And then when we look at M&A, I mean, traditionally, we are crude oil, liquids type of business. So those are the type of assets we're going to look at. And as a general rule, those assets have a better -- don't have the emissions on the drivers but things like the HRD facility could potentially increase our emissions thresholds. So even though they're very much energy transition, they could actually increase our emissions ratios and our -- so we have to balance these things. These are definitely discussions we have with the Board, and we are committed to our ESG targets. So there are things that we need to balance as we move forward. I don't know, Sean, would you add?

[Sean Brown, executive]

Yes. No. I mean as with anything, there's numerous things that you would need to evaluate looking at M&A, impact on our energy transition or ESG initiatives is certainly forefront in one of the strategic things we think about. The other ones would certainly be quality of cash flows, inherent growth profile, synergy with existing assets. All of those would be taken into consideration. I think if I understood the question correctly, I mean, just because we have a lighter emission footprint right now doesn't necessarily mean that we have an outsize ability to take on additional emissions is I think the short answer. Any M&A would have to be absolutely on strategy for us, and there's a number of different factors there.

[Andrew Kuske, analyst]

Okay. I appreciate that. And then maybe just an extension. Do you see any ability to partner with private capital to maybe accelerate some of your organic opportunities that you have and remain in a window where you can still do the share buybacks, have the balance sheet management, all of those things that you've delivered in the last few years? And then maybe also supplement M&A, where you've got the expertise on an operational basis, but someone else has maybe greater financial capacity?

[Sean Brown, executive]

Yes. I'll take that, Andrew. I mean, given Steve talked about earlier, sort of visibility to growth capital, some of these energy transition opportunities like the HRD it getting up to that circa $300 million a year number. I mean, to the extent that we're deploying that, then there wouldn't be a need for external capital. I mean we can fund that internally within our financial governing principles, and we think that would be the best return to shareholders.

I mean, to the extent that we had a capital opportunity in excess of that where we couldn't internally fund it, I mean, that would be an absolutely fantastic problem to have for us, and we'd be happy to explore partnering with private capital or other pockets of capital to affect that and we would certainly look into it. But I mean, at the levels we're talking about, we can internally fund that to the extent it goes above that, then absolutely something we would think about. But that is a high-class problem and one we look forward to tackling.

[Operator]

Your next question comes from Patrick Kenny with National Bank.

[Patrick Kenny, analyst]

Just back on the clean fuels opportunities here and just wondering if you can just clarify what you'd like to see on the Canadian clean fuel standard front? And then also if you could touch on what the carbon intensity reduction target moving towards 1.5% per year, up from 1.2%. Just any thoughts on how this accelerated path might increase demand from your downstream customers over the coming quarters for some additional biofuels blending capacity?

[Mark Chyc-Cies, executive]

It's Mark here. Very good question. Obviously, a positive that the CI reduction has accelerated because that's going to drive more demand. I think there's several things we're looking under the fuel standards. But the one thing that I think is really important is what the alternate path to compliance are. I think what you want to know is that there's going to be a market for the fuel the product, but also that those credits are going to be holding value because as we know from other markets, the cost of producing the renewable fuel exceeds the conventional fuel. So I think it's really important that you see that the tip to tail crack spreads go around.

[Patrick Kenny, analyst]

Okay. That's great. And then, Sean, just to come back to the funding conversation there, and you touched on potentially looking at partnerships should your growth capital move back more in line or potentially above pre-pandemic levels, but curious how you would view recycling some capital from your legacy, more mature assets and redeploying into the transition value chain?

[Sean Brown, executive]

If I -- thanks, Pat, and I mean, if I understand that correctly, is that partial monetization of something like Hardisty to recycle into under new transition, is that sort of what you're referring to?

[Patrick Kenny, analyst]

Yes, exactly. So not just noncore assets as you've already done, but looking more at sort of the core mature asset base, exactly.

[Sean Brown, executive]

Yes. Again, I mean I would look at that similar to private capital in the sense that, I mean, given our visibility right now and around our capital deployment, even if some of these larger projects that we can internally fund that we can retain 100% of our assets. I mean to the extent, again, we had a call on capital that was much greater than that, then we'd look across the board at potential funding avenues and something like that could be in the cards potentially. It depends on the project and what we're doing. It could mean private capital as we talked about or we try and sell funded. I mean, again, these are high-class problems to have and not one that we see really in front of us right now, but we have to look into it.

[Operator]

There are no further questions. I'd now like to hand the call back to Mr. Chyc-Cies.

[Mark Chyc-Cies, executive]

Well, thanks, everyone, for joining us on our 2022 First Quarter Conference Call. Again, I would like to let you know that we've made certain supplementary information available on our website, which is gibsonenergy.com. I would like to also remind everyone that we will be holding our virtual Annual General Meeting later today at 10:00 a.m. Mountain Time or noon Eastern. Details are available on our website and participants are encouraged to register for the live audio webcast at least 10 minutes prior to the presentation start time. Hope you're able to join us.

And if you have any further questions, please reach out to us at [e-mail]. Thank you. Have a great day, and thanks for your support to Gibson.

[Operator]

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.