Gibson Energy Inc
TSX:GEI

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Price: 22.95 CAD -0.65% Market Closed
Market Cap: 3.7B CAD
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Earnings Call Transcript

Earnings Call Transcript
2017-Q4

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Operator

Good day, ladies and gentlemen, and welcome to the Gibson Energy 2017 Fourth Quarter and Year-End Results Conference call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to your host for today, Mark Chyc-Cies, Vice President Investor Relations. Mr. Chyc-Cies, you may begin.

M
Mark Chyc-Cies

Thank you, [ Sonia ]. Good morning, and thank you for joining us on this conference call discussing our 2017 fourth quarter and full year operational and financial results. On the call this morning from Calgary are Steve Spaulding, President and Chief Executive Officer; and Sean Brown, Chief Financial Officer.I'd like to caution you that today's call contains certain forward-looking statements that relate to future events or to the company's future performance. These statements are given as of today's date and they are subject to risks and uncertainties as they are based on Gibson's current expectations, estimates, judgments, projections, and risks. Actual results could differ materially from the forward-looking statements expressed or implied today. The company assumes no obligation to update any forward-looking statements made in today's call. Additionally, some of the information provided refers to non-GAAP financial measures. To learn more about forward-looking statements or non-GAAP financial measures, please refer to the December 31, 2017, Management's Discussion and Analysis, which is available on our website and on SEDAR.Now, I'd like to turn the call over to Steve.

S
Steven R. Spaulding
President, CEO & Director

Thank you, Mark. Good morning, everyone, and thank you for joining us. As we close out 2017 by reporting our operational and financial results for the year, I think it's important that we recognize that 2017 was a start of a dramatic transformation of Gibson. I'm very pleased with the progress we've made and what we see on the horizon. When I joined the company in June, Gibson had already taken the first steps on our current path to the sales of the Industrial Propane business. And as we worked through our strategic review of the business, it quickly became clear, we needed to exit our U.S. Environmental Services business. These are among the first steps to make Gibson a more competitive investment proposition for the Canadian Energy Infrastructure space.As we outlined at our Investor Day just over a month ago, we're going to accelerate the shift in the business to an oil infrastructure-focused company with high-quality cash flows. We also want to have a business that delivers an attractive growth profile on a per share basis. Well, which will underpin a secure and growing dividend. What hasn't changed is the appreciation of our terminals, particularly Hardisty, are the heart of this company. At Hardisty, we have a strong competitive position that is due to our existing connectivity called the inbound and outbound pipelines, plus exclusive access to the only unit train facility.As I spoke at Investor's Day, we expect the oil sands production will continue to grow through small- to medium-scale brownfield Flag D projects, and the debottlenecking of existing projects, adding anywhere from 20,000 to 50,000 barrels a day. For perhaps further evidence, the oil sands players intend to keep growing over the long term as the recent application by Suncor for their Lewis project, which will add 160,000 barrels a day over 4 stages in the latter part of the next decade.In September of 2017, we sanctioned the construction of additional 1.1 million barrels of tankage at Hardisty, and expect to realize an EBITDA investment multiple of 5 to 7x on these types of projects, which is consistent with the other tanks over the last several years.This January, we placed 2 tanks in Edmonton in service, adding 800,000 barrels of capacity ahead of schedule and below budget. We remain confident we can sanction at least 1 to 2 tanks per year on a run-rate basis in the current price environment with the potential to increase with higher oil prices, or if continued egress concerns result in producers seeking more security by extending their available resident time and adding additional storage. This confidence in the 1 to 2 tanks are great as also predicated on our current commercial discussions with existing and potential customers which -- and we are confident that a portion of these negotiations will lead to the sanction of additional tankage over time. We also appreciate the need for Gibson to grow beyond incumbent tankage opportunities and to fully surface the value within our asset base.At Investor Day, we talked about several opportunities we see. So let me provide some color on the progress we're making. In terms of additional opportunities inside the fence line, similar to our tankage opportunities, these conversations are ongoing, as several customers have indicated an interest to add additional services. And again typically, these are the 5 million to 10 million barrel opportunities, but they add up over time. Perhaps one tangible example we can give -- that we can grow beyond tankage is the $50 million Viking pipeline project that we sanctioned a few weeks ago. When we talk about leveraging the core assets while being commercially and customer focused, opportunities like the Viking Pipeline are product of that. Energy Infrastructure can be a competitive space and -- for investment opportunities. And I believe Gibson Energy can compete and more importantly we will win. The $50 million -- while $50 million may sound like a small number relative to our peers, put it in context, it represents 1/3 of our target capital investment per year. The underlying economics for this project is strong, and we like the cash flow quality in the basin. And we like the potential of increase in that capacity over time. We continue to actively evaluate other pipeline investment opportunities in Western Canada and seeing the Viking Project is really a first step.In terms of our U.S. strategy in 2017, we canceled our exclusive use agreement with respect to our injection stations with the third party. This agreement prevented us from building out our [ BI Sale ] business, and it granted that third party a 25-mile area of exclusive views around our injection stations, really blocking the growth of Infrastructure in the U.S. As part of this -- I'm pleased to say that while our strategy in the U.S. is still in early stages, there's meaningful progress being made. As we talked about at Investor Day, we intend to focus the -- our U.S. presence strictly on the Permian and the SCOOP/STACK, where we have a competitive advantage through our injection stations, located on some of the most important egress pipelines. These 2 basins can grow 1 million barrels a day in-- next year, which is about as much as Western Canada is expected to grow in the next 10 years. For this reason, we are certain -- we certainly believe there will be opportunities and we will execute on them.As part of this focus on the Permian and SCOOP/STACK, we are continuing to see month-on-month increases in our load counts in our trucking business. The volumes in February in these core basins is approximately 25% higher than any time last year. We are still in the early stages of building them back, our $10 million to $15 million EBITDA business, but are encouraged that we're winning new business.It is important to be clear that our U.S. strategy is focused on securing Infrastructure opportunities, focused on gathering systems rather than building out a large trucking presence. One of the critical elements to our strategy is to have local relationships necessary to win the business, while I have done a lot of business in the U.S, in both these target basins, I'm very glad we've been able to hire a very talented Vice President of Business Development in the U.S. We've only had [indiscernible] on the job for 2 months, but the quality and quantity of opportunities he serves provides optimism, that we'll be able to sanction some capital investment opportunities this year which would be ahead of schedule. As you've likely noticed, I believe it's very important that we have the right people in the key roles, and that we have the right organizational structure. Towards the end of the year, we made a series of changes to drive commercial focus throughout our organization and remove any previous silos that were remaining and place more emphasis on the producer or major customer. We've also removed extra layers and sought to decrease the number of senior leaders, as we move towards a more innovative and streamline organization. As we've said before, these changes will result in a cash and share-based cost savings of between $50 million to $20 million per year on a run-rate basis. Over time, I believe this will also have other cost saving benefits, as I found that from my experience that people spend money and with less people you don't have the project -- you do the project that you really need to do and avoid the ones that are not required. We expect that we will continue to provide opportunities to reduce cost in each of our businesses. And we're thinking about how we will grow our distribution cash flow when we think about how we'll grow our distribution cash flow, cutting cost has a direct impact and is something that is within our full control. And while we continue to drive cost, the other benefit we are seeing from our organizational changes is the quality and the execution on our opportunities, both in our Wholesale segment and on our commercial front. We are seeing a difference from the changes we've made.To conclude my comments, but I want to leave you with today, is that we see many indicators that the transformation is taking hold, and we're starting to turn the corner. And we are confident in our ability to grow 10% a year through 2019 and are already taking steps to secure opportunities that will drive that from 2020 and beyond.I will now pass it over to Sean, who will walk us through the financial results in more detail.

S
Sean M. Brown
Senior VP & CFO

Thanks, Steve. As Steve mentioned, from a financial perspective, we had a strong 2017 with continuing Infrastructure segment profit, total segment profit, adjusted EBITDA and distributable cash flow, all increasing meaningfully over 2016.Looking to our strategy, one of our achievements in 2017 was that over 75% of our segment profit was from Infrastructure, with approximately 2/3 from Terminals & Pipelines. As a result, we are well positioned to reach our targets of 85% Infrastructure and 75% Terminals by the end of 2019 through additional Infrastructure growth as we divest -- and as we divest in noncore businesses.As Steve mentioned earlier, Gibson is undergoing a dramatic transformation with the shift to Infrastructure driving a material improvement in the quality of our cash flows, the security of our dividend and the strength of our balance sheet. Before speaking to the results, please let me note that as we progress in the disposition process, certain businesses will be classified as held for sale or discontinued operations, so the geography may change a bit between quarters. To provide the most consistent comparison between periods, and to focus on the results that are most indicative of where the business is heading, we'll generally speak to our result in a continuing basis rather than a combined basis. The exception to this will be distributable cash flow, which we'll continue to consider on a combined basis. So inclusive of divested businesses for the period we held ownership, as this is the most indicative -- having trouble with that word -- of the cash generated by our operations in the amounts available for distributions.So turning to the financial results. Adjusted EBITDA from continuing operations of $278 million for full year 2017, with a 14% increase over the $244 million earned in 2016. While each of the segments provided a higher contribution in 2017 than in prior year, $36 million of the $46 million increase in total segment profit was from the Infrastructure segment. This increase within Infrastructure was largely driven by additional revenue from the new tanks commissioned in the fourth quarter of 2016. Partly offsetting the increased revenue was a couple of onetime items with a $4.6 million revenue adjustment and a recognition of $2.3 million in environmental remediation costs, decreasing Infrastructure segment profit by approximately $7 million in the fourth quarter of 2017.In our Logistics segment, full year segment profit was about $3 million higher than in 2017 than in 2016, with contribution from Canadian truck transportation, increasing approximately 25% as a result of stronger margins and a modest increase in volumes. U.S. Environmental Services was up $14 million or about 140%, reflecting an improvement in water hauling volumes and margins in the SCOOP/STACK and Bakken. Partly offsetting this was a weakness in U.S. Truck Transportation, as we ended the exclusive injection station relationship with our largest trucking customer to transition to a new business model, leading to a 27% decrease in trucks volume for the year. Contributions in the Wholesale segment improved by $6 million in 2017 relative to 2016. Refine products saw a meaningful improvement in 2017 as the drilling fluids and roofing flux markets both strengthened. Partly offsetting the strength in refined products was NGL Wholesale, where we continued to see narrow winter/summer spreads, reducing profitability of our propane activities. Crude wholesale on 2017 was generally in line with 2016.Looking at the fourth quarter, our 2017 adjusted EBITDA from continuing operations was $82 million, relative to $84 million in 2016. Contribution from Infrastructure was flat from the fourth quarter of 2016 as additional tankage in service was offset by the negative impact of the $7 million in onetime items as already discussed. Another driver of the decrease was a lower contribution of Logistics, due to ending our exclusive injection station relationship with our largest trucking customer in the U.S. as already discussed, as well as weaker margins in the Canadian Truck Transportation.Turning to distributable cash flow from combined operations. The $184 million in 2017 was a 39% increase from 2016, while $65 million in the fourth quarter of 2017 was also 35% ahead of the $48 million earned in the comparable quarter last year. On a full year basis, the increase in our continuing business was effectively offset by the sale of Industrial Propane with decreased financing cost and de minimis cash taxes in 2017 accounting for the majority of the improvement in distributable cash flow. Through the refinancing of our notes and repayment of debt over the course of 2017, aggregate financing costs were $17 million lower in 2017 than 2016. On a run-rate basis, interest costs were reduced by over $35 million, while improving our debt maturity profile with the first series of notes due in 2022. Additionally, the realized foreign exchange loss in the repayment of notes significantly reduced our taxable income in 2017. On a payout ratio basis, over the full year of 2017, we are at approximately 100%. As we talked about at our Investor Day, we expected our payout will be at or below 100% as we work through our dispositions. We are confident that the high-quality cash flows from our Infrastructure segment will continue to underpin the current level of our dividend and the payout ratio will continue to decrease towards our target range of 70% to 80% as new projects are placed into service and cost-saving initiatives are realized.Total growth capital investment during the year was $157 million, inclusive of $59 million in the fourth quarter. Over 90% of growth capital was incurred in the Infrastructure segment as we advanced the expansions of the Edmonton and Hardisty Terminals. The decrease in spending in 2017 relative to plan was a result of both cost savings we realized on construction at Edmonton, as well as the timing of when capital is incurred relative to initial estimates. As Steve mentioned, the Edmonton expansion was placed into service at the start of the year ahead of schedule and under budget. We continue to expect the Hardisty expansion will come into service in Q3 2019, with the project trending to be on or ahead of schedule and at or below budget cost.For 2018, with the sanction of the Viking Pipeline Project, we updated our 2018 growth capital outlook to be between $165 million and $205 million, implying that our capital investment in 2018 will exceed 2017, based on the projects we have sanctioned today. We continue to seek additional investment opportunities with a potential to invest up to $250 million in 2018.Maintenance capital in 2017 was $28 million. We expect to be in line or below those levels in 2018 as we focus on driving down cost and divest of several more capital-intensive businesses. We remain well positioned to fund our capital program with significant available capacity in our revolving credit facility. Leverage at the end of the quarter was just under 4x trailing 12-month pro forma adjusted EBITDA. As we outlined in our financial plan at Investor Day, although our leverage is currently higher than our target range, we have comfort as a result of our high quality of cash flows and fully funded capital plan. In particular, the majority of our EBITDA is from our steady, highly contracted Infrastructure business, and our limited cyclical businesses already at or emerging from trough earning levels. We expect our leverage metrics will remain elevated above target through 2018 but will move towards our target range of 3x to 3.5x, as a result of the additional tankage that will come into service in 2019 as well as improvements in EBITDA as we focus on our cost structure.As we talked about at Investor Day, we view our capital program through 2019 will be fully funded through the $275 million to $375 million we can certainly expect to receive from our noncore divestitures. With respect to our noncore divestitures, the sale of ES South continues to progress very well, and we believe we will be in a position to announce the transaction in the first quarter and are confident we'll be able to close in the second quarter. As part of the realignment of the U.S. business, we are rationalizing our noncore injection stations and trucking assets. We launched this realignment at the start of February, and are encouraged that the interest for these assets from potential buyers. We've received multiple bids and are hopeful, we can close certain regional divestitures through the second or third quarter.The divestiture of NGL Wholesale is progressing well, and we continue to target a third quarter closing. Between U.S. Environmental Services and NGL, we'd expect to have our 2018 capital fully funded. Looking to 2019 funding, we are now in the preparatory phase with respect to our Canadian Truck Transportation divestiture and expect that we'll put that into the market sometime in the second quarter of this year with the potential that we are ahead of our mid-2019 target.Overall, we are very happy with how the divestiture process is going and believe that we will meet with the potential to beat both our aggregate proceeds range and our timeline.We are also very pleased to see yesterday's announcement by S&P, that it's upgraded its outlook for Gibson's from -- to positive on the back of our Infrastructure-focused strategy. We are also encouraged by S&P's upside scenario, under which our credit rating could be upgraded as we continue to deliver on our strategy in terms of executing our divestitures and securing organic growth that increases our weighting towards take-or-pay and stable fee-based cash flows.Looking ahead to our first quarter results, we want to remind everyone that we will be early adopting IFRS 16 as we had previously indicated. There's no impact to distribute cash flow from this adoption, however, the noncash component of both segment profit and EBITDA will be approximately $55 million per year higher or just under $15 million a quarter. In our business, the majority of the lease cost relate to rail cars in our Wholesale segment. Of the approximately $40 million in lease cost within Wholesale, about half of our NGL business. To provide an example, we expect that segment profit in Wholesale in the first quarter will be between $20 million and $30 million including the impact of IFRS 16, which would be comparable to the $20 million to $30 million we talked about as our expected range for the fourth quarter of 2017 without IFRS 16.I would note that -- to the extent the differentials remain wide, there is potential upside in our Wholesale segment over the course of the year, primarily through wider margins in refined products. In all, operational performance of our business remains strong and we continue to improve our financial position while advancing our strategy to focus on growing our long-term, high-quality cash flows within the Infrastructure segment.At this point, I will turn the call over to the operator to open up for questions.

Operator

[Operator Instructions] Our first question comes from Robert Hope of Scotiabank.

R
Robert Hope
Analyst

Can you hear me?

S
Sean M. Brown
Senior VP & CFO

Yes, we can now.

R
Robert Hope
Analyst

Okay. Just in terms of tankage opportunities at Hardisty and Edmonton, with the recent widening of differentials, and I would imagine kind of storage levels picking up, are you seeing, I guess, a. additional interest from producers for additional tankage opportunities that we could see across the line in the near term? And then b, have you been able to clip incremental margin in any way due to the -- those dynamics as well?

S
Steven R. Spaulding
President, CEO & Director

I'll address that one. This is Steve. We have several opportunities that we're chasing there as a terminal. Probably the -- we're looking at potentially taking -- there's opportunity to gain market share at the terminal. There are opportunities around the rail-driven opportunity which is part of that spread, so people will be expanding their use of the rail terminal, and adding additional storage. And then probably, a focus with some of the big downstream players that are wanting to add storage there at our Hardisty terminal. As far as specifically taking advantage of the opportunity within our Infrastructure asset, no, that's a very much a steady business, and it hasn't -- we have seen very little impact to that business from the spread itself. And it's still very early in the process as far as people adding additional storage because of the impact of the pipeline maintenance that occurred, and because of Fort Hills coming on as we speak.

R
Robert Hope
Analyst

All right. That's helpful. And just as a follow-up, the Viking Pipeline kind of seemed to be exactly what you were pointing to at the Investor Day in terms of expanding kind of the reach of your terminals. Is that the low hanging fruit for 2018? And are you looking at additional investments probably further down the line? Could we expect some additional movement in '19 there?

S
Steven R. Spaulding
President, CEO & Director

That's a good question. That'll -- we were pretty confident at our Investor Day. We did hold it back because it wasn't quite wrapped up at that time. Of course, we do continue to drive for opportunities around that Hardisty terminal and development out of that Hardisty terminal. And then probably other opportunities would be in the U.S., really in that Delaware Basin, in the Midland basin right now. But those would not be very large projects in the U.S.

Operator

And our next question comes from Linda Ezergailis of TD Securities.

L
Linda Ezergailis
Research Analyst

It's interesting to note that S&P is already acknowledging all your initiatives by revising your outlook to positive. But maybe you can provide some context around some aspects of the plan that you're presenting to them in terms of your based case scenarios and sensitivities around upside, downside? Specifically, as it pertains to the dividend, I'm assuming that your base case plan presents as flat for the next number of years, but under -- did you have a discussion with them under what scenarios and when might you consider increasing it? And under what sort of unusual scenarios with the debt rating agencies expect you to reassess the appropriateness of that level?

S
Sean M. Brown
Senior VP & CFO

Thanks, Linda, there is a lot in that question, but I'll address. Absolutely, we were pleased to see the announcement by S&P yesterday. As you note is reflective to the -- of the change in the business mix that we have seen certainly over time and continue to see through the strategy. What I would say is that that was an S&P-initiated exercise. So they were upgrade or -- sorry, they were moved in sort of -- is that they made what was not as a result of us going in to see them recently. That was the result of sort of them taking a look at what we talked about at the Investor Day, I'd imagine getting some feedback from investors, and just reflecting some of the changes we had made. So it's not like we had gone in recently and provide them substantial scenario analysis. Typically we do go in and see them sometime in the first half of the year and still intend to do so. Specific to your question around sort of upside, downside, they would have received, when we last went in to see them certainly, and even more recently our budget for the year, which I think as I said to people is quite conservative, especially as we think about our Wholesale segment, which as I noted in my prepared remarks today, we do see some upside on. But with respect to sort of different dividend scenarios, we didn't present to them any different scenarios that would contemplate an increase, decrease in dividend, because we didn't give them recently any numbers sort of beyond the 2018 timeframe.

L
Linda Ezergailis
Research Analyst

Maybe as a more detailed question. Can you help us with understanding what sort of expectation for cash tax trends you would have in next couple of years as well as maintenance capital?

S
Sean M. Brown
Senior VP & CFO

Yes, yes, absolutely. So from a cash tax perspective, we actually expected to be relatively de minimis in 2018, once again. So would expect it to be relatively close to call it 0 in 2018. On a run-rate basis, we would expect that probably be closer 2019 and beyond, and so the $10 million to $15 million range. And then from a maintenance capital perspective, as I had in my prepared remarks today, I was just getting the exact number, $28 million was the number for 2017. In our budget would be -- indicate a number pretty close to that for 2018, but we would expect that there's certainly are some opportunities to improve that. So think of that probably closer to the $25 million range as we work through. It'll depend partly on sort the timing of the divestitures as we move through, and the continued focus on cost savings which in our mind includes maintenance capital that Steve's talked about really since he joined the business.

L
Linda Ezergailis
Research Analyst

Okay. And then 2019-plus run rate?

S
Sean M. Brown
Senior VP & CFO

Yes.

L
Linda Ezergailis
Research Analyst

$25 million as well?

S
Sean M. Brown
Senior VP & CFO

Yes. So think of it, 2019 $25 million or less is the way I would think about it.

Operator

And our next question comes from Robert Kwan of RBC Capital Markets.

R
Robert Michael Kwan
Analyst

If I can come back to rail and just wondering if there's any update on the recontracting side of things. And Steve you alluded to it a bit just with potential for expansion but as well any discussions you're having around expanding the Infrastructure and the facility itself with your partner?

S
Steven R. Spaulding
President, CEO & Director

Our main focus there is to -- is not to expand first, but actually to recontract the existing contracts. And there has been considerable discussion. That's really been led by our partner. We're starting to get involved, and we've seen significant increase over time in the rail use. Right now, I believe that rail -- our rail facility's been kind of held back and as the rail companies start to staff up and bring in the power. But they're not going to do that without long-term commitments from our customers. So that commitment is much larger than the commitment when you look at as a rail facility commitment. So we believe that the 2 commitments combined, we will see some longer-term extensions of those agreements relatively within the next several months.

R
Robert Michael Kwan
Analyst

Got it. And then, maybe just to finish on the U.S. Environmental Services sale. In your disclosure, there are some statements around structure that you've agreed upon. I'm just wondering if you can elaborate on what that might mean and if it refers to the form of conservation, cash papers, their deferred payments? And as well did S&P know what the price is prior to their action yesterday?

S
Sean M. Brown
Senior VP & CFO

Thanks for that Robert. So I'm not going to comment specifically on structure, I mean we would anticipate with respect to sort of your direct question, that it'll be all cash or largely cash consideration. I would say the structure comment within there was probably more around the vagaries of the accounting assessment that we had and the different tests you have if you went through the note, it's whether or not it was held for sale at year-end and what's happened since then. The determination was made by management in conjunction with -- or others that it wasn't held for sale at year-end, but subsequent to that, it would have met the test and destructure the transaction is one of those. So I wouldn't read into the specific part of it overly, but that being said, it is contemplated to be all-cash consideration. And with respect to the rating agencies -- again, there hasn't been a very recent update with them, but we have kept them updated as we've moved through the process, and they are aware of what we expect the value of that business to be other realized value.

R
Robert Michael Kwan
Analyst

Sean, so it was S&P move based on the expectation not knowing the price that you've agreed upon?

S
Sean M. Brown
Senior VP & CFO

No, no. They -- as I -- sorry, we've kept them updated as we've moved through the process. So they are aware of what we would expect the price to be for ES South.

Operator

Our next question comes from Jeremy Tonet of JPMorgan.

J
Jeremy Bryan Tonet
Senior Analyst

So around the $250 million potential growth Capex for 2018 and what kind of projects that could entail?

S
Sean M. Brown
Senior VP & CFO

Sorry, Jeremy, you cut out in the beginning, it's Sean here. But I think your question was, in our capital guidances the $160 million to $205 million, but you also note the potential for $250 million in growth capital in 2018 and I think the question is, what are the type of projects that could push that number up to the $250 million? Is that the...

J
Jeremy Bryan Tonet
Senior Analyst

That's correct.

S
Sean M. Brown
Senior VP & CFO

Sorry, you cut off at the start.

J
Jeremy Bryan Tonet
Senior Analyst

Yes, that's correct.

S
Steven R. Spaulding
President, CEO & Director

So the $250 million, our guidance really is really around that $155 million range...

J
Jeremy Bryan Tonet
Senior Analyst

To $205 million.

S
Steven R. Spaulding
President, CEO & Director

To $205 million, so to push up around to $250 million would be -- that would be really successful, probably build out of tankage in the Hardisty area. That would be probably our biggest opportunity right now. The things in the U.S. would be relatively small. We're talking 10s and 20s. And so those -- probably our Hardisty asset would be our main focus there.

S
Sean M. Brown
Senior VP & CFO

Yes, I think Jeremy, from a large scale as Steve said, it would probably be in and around Hardisty and initiation would be there, new tank builds or some of the plumbing in the facility. As you are aware, I think your question was specific to what could -- what are some of the larger scale projects that could increase it. But I mean, as we think about the ability to get up to that $250 million number, I think certainly some of the smaller scale things is what could push it up as well. And as Steve alluded to, that would be -- being successful in our U.S. strategy through 2018, and actually deploying some capital into the infrastructure side there, or even some of the smaller opportunities inside the fence line at Hardisty and/or Edmonton. So the $250 million number, could be achieved either through the announcement of something more material or equally likely is just through small-scale opportunities that we chip away through the year.

J
Jeremy Bryan Tonet
Senior Analyst

And then could you update us on the progress for the Moose Jaw strategy realignment?

S
Steven R. Spaulding
President, CEO & Director

Yes, that's going very well. We're -- we continue to have negotiations with several parties when it comes to that kind of take-or-pay tolling agreement across the facility, cost cutting at the facility is -- most of all of the cost cutting at the facility has been done. And so, we see that transformation really kind of going forward. We're currently reviewing a small project there to expand the facility approximately 20% on a go-forward basis.

J
Jeremy Bryan Tonet
Senior Analyst

Okay. And then just one last one. Could you share the expected multiple for the Viking Pipeline Project, if you've given it?

M
Mark Chyc-Cies

We've talked about the Viking Pipeline in the base case being kind of in the 8 to 10x range, Jeremy. And then if we can fill up the pipe, we think that we could get into that 5x or 7x EBITDA range.

Operator

And our next question comes from Ben Pham of BMO.

B
Benjamin Pham
Analyst

On that last question on the multiples -- the build multiples, you mentioned 5 to 7x today, bit of a notch different than the 6 to 8x you mentioned at the Investor Day, and I wanted to more ask what's driving that change? And also given the take-or-pay nature of the tankage, maybe a bit of context on what would drive the high and low of the range?

S
Sean M. Brown
Senior VP & CFO

Thanks, Ben, appreciate that. As we talked about previously, the 5 to 7x is really consistent with where the build multiple has been sort of throughout. Immediately post IR Day, we had put sort of the 6 to 8x specific to those tanks in there to be directed in the 6 to 8x, I don't think that was a change in messaging. We have had a philosophy that we certainly brought forth that we're looking to underpromise and overdeliver. The 6 to 8x was really a conservative view if you looked at the specific multiples there. One of them was sort of at the very low end of the 6x and one of them was at the sort of 7x range. So if you think about the 5 to 7x still very much in line with that. So nothing really inconsistent with what we've had before other than through IR Day again was looking underpromise, overdeliver, take a conservative lunge towards things. So really no change in build multiples from today's messaging from what we had brought forth at Investor Day.

B
Benjamin Pham
Analyst

And can I then follow-up on the ranges of returns of that?

S
Sean M. Brown
Senior VP & CFO

You can you address that one.

S
Steven R. Spaulding
President, CEO & Director

So Robert (sic) [ Ben ], where the range of the returns are, really depend on the build-out of the facility. So many times when we build these facilities, we'll build the piping, piping the Infrastructure and the retaining -- the retaining Infrastructure. So we can build 3 to 5 tanks within that facility kind of within a defined area. And so if we build just 1 or 2 tanks, that can be up in the higher -- of the higher multiples. But when you build out those final 2 tanks, that can drive you down into that 5 and 6 multiple. Does that help you Robert (sic) [ Ben ]?

B
Benjamin Pham
Analyst

Yes, it does. And then, can I ask you then on the messaging on the payout at or below 100% with Viking now being announced. Doesn't seem there's a change in the payout messaging, is that because you had Viking in the thought process already at IR Day?

S
Sean M. Brown
Senior VP & CFO

Yes, I mean certainly, I mean, Viking we wouldn't expect to cash on '18, so that wouldn't change that view. But I mean, as Steve alluded to, Viking was very well advanced as we went into Investor Day. I mean, we are pretty direct on the opportunity we thought to build that pipeline that we're going to -- even in his prepared remarks at Investor Day, Steve specifically referred to the Viking basin as a place that we viewed as being potential or attractive. So that was absolutely in the numbers we had at Investor Day. And that's also something we tried to get out post-Investor Day, as we thought about -- or projected that we feel we're fully funded through 2018 and 2019. Those Viking -- the Viking capital was in the slides that we had through Investor Day. So that was absolutely anticipated and included in the numbers.

B
Benjamin Pham
Analyst

Okay. And can I ask you quickly also the U.S. ES sale in December when you were going through the bidding process? Did buyers know that ES was going to see a tripling of EBITDA versus '16 numbers? Or is -- or that has placed an upward momentum on the pricing expectations?

S
Sean M. Brown
Senior VP & CFO

No, no, this is largely in line with budget. So I mean whenever you put forth a sale process like this, you produce a budget that you feel is credible and defensible, and that's exactly what we did here. And the numbers that ES South has achieved are largely in line, maybe modestly above budget, but not so materially that it would change the narrative. I mean this is the nature of a business like ES South, and trough years it doesn't perform extremely well and when things turn, there's fair bit of torque to recovery. So this is absolutely consistent with what we would have budgeted if modestly above and consistent with what we would have presented the buyers throughout the process.

Operator

And our next question comes from Robert Catellier of CIBC World Markets.

R
Robert Catellier

Just a quick update on the Viking here, a follow-up. I'm wondering if you could disclose or give us bookends as to how much is contracted and for what term?

S
Sean M. Brown
Senior VP & CFO

Thanks, Rob, I don't think -- we are now coming out with specific level of contract in this. I think as Mark had indicated, we've got based economics sort of that 8 to 10x. Think about that as being sort of the contracted portion of it. And to the extent that we get more interruptible volumes or more volumetric through it. That's what drives it down to the 5 to 7x. But we are not sort of coming out and saying specific to what portion of the pipe is contracted at this time.

R
Robert Catellier

Maybe you could give us a characterization of how much of exposure you would have on an EBITDA basis or maybe the sensitivity pro forma of the asset sales from the capital plan that's currently envisioned?

S
Sean M. Brown
Senior VP & CFO

Sorry, say that again.

R
Robert Catellier

Yes, I'm looking for the exposures -- EBITDA exposure to the U.S. pro forma, all these asset sales.

S
Sean M. Brown
Senior VP & CFO

So on a LTM basis, our contribution with the U.S. will be basically 0. If you think about our U.S. business, right now, it's primarily ES South and TT South. And TT South as we've talked about with the exit of our exclusive injection station agreement, the TT South or TT -- the trucking business south of the border has been sort of -- on an LTM basis, will be de minimis, and we'd expect would be sort of in sub-$5 million this year, conservatively. And as Steve alluded to, are looking to grow that back to the $10 million to $15 million range in sort of the next 12 to 18 months. So yes, the exposure to the U.S., as we sit here today is small, but that's certainly something that we would love to grow.

R
Robert Catellier

Okay. Maybe you can -- that segues nicely to last question here as just the progress on reallotting the U.S. injection stations? And really what I'm looking for is the timeline as to when you think you might have enough traction to enough volume to consider capital projects?

S
Steven R. Spaulding
President, CEO & Director

So Robert, when we first started to develop this strategy, we thought we would probably -- it would take us a year kind of the -- to get the strategy kind of launched and have the opportunity to start building out some small gathering systems there. Really just the amount of activity in these basins and the amount of opportunities in these basins, along with hiring that crucial business development person, we believe that we'll see some -- we'll move forward with some projects in probably the third quarter. Hopefully, that's a good target for us. And again, these are pretty small projects, Robert, probably in the $10 million range.

Operator

[Operator Instructions] Our next question comes from Andrew Kuske of Credit Suisse.

A
Andrew M. Kuske

And probably for a question for Sean to start off with, and probably more clarifying than anything. So just for clarity, your -- you anticipate your DCF this year really covering the dividend maybe a little bit better. And then your sale proceeds will cover the totality of your CapEx, your growth and your sustaining capital. That's effectively what you're guiding to?

S
Sean M. Brown
Senior VP & CFO

Yes, absolutely. So yes, so payout ratio sort of at of below 100%, we would expect, and sale proceeds to fund growth capital.

A
Andrew M. Kuske

And in that growth capital number you had Viking really within that number because you had good line of sight on that?

S
Sean M. Brown
Senior VP & CFO

Yes, no, absolutely. Yes, that was in sort of the slides we presented at Investor Day and that is consistent with the messaging that we have.

A
Andrew M. Kuske

Okay, perfect. I appreciate that. And then just on the U.S. business and just the potential if we think about all the steps of effectively setting up that U.S. business again, realigning what you've already got. How do you think about the potential just in the SCOOP/STACK and the Permian with existing assets before you get in the -- doing anything else incremental there?

S
Steven R. Spaulding
President, CEO & Director

I think our main focus is really to stand the business back up and get to that $10 million to $15 million run rate which includes kind of our Pyote system. And the SCOOP/STACK is another exciting -- that we talked about the Permian, but the SCOOP/STACK is an exciting opportunity for us. And we think that the growth in that area and that there are opportunities for some gathering and some short-haul pipelines into cushion area. So we will continue to evaluate those opportunities with the customers there in Oklahoma.

A
Andrew M. Kuske

And then finally if I may, and just maybe a nitpicky accounting question and just Sean, just on termination expenses that you had, I think in '16, it was about $10 million, in '17 about $16 million. How do you think about that in '18 given all the heavy lifting you've done in the last 12 to 18 months?

S
Sean M. Brown
Senior VP & CFO

I think our expectation is that we will have no adjustment for severance in '18, as we think about it. This -- we had a significant charge in '15, we had significant charge in '17. There will be continued movement in the business, but that will be reflected in sort of the ongoing G&A. So I would not expect another sort of nonrecurring charge to show up in '18.

Operator

And ladies and gentlemen, this does conclude our question-and-answer session. I would now like to turn the call back over to Mark Chyc-Cies for any closing remarks.

M
Mark Chyc-Cies

Thank you, [ Sonia ]. And thank you, everyone, for joining us on our 2017 fourth quarter and year-end conference call. I would like to note that we also have made available certain supplementary information on our website, gibsonenergy.com. If you have any further questions, please reach out to us at investor.relations@gibsonenergy.com. Again, thank you very much for joining us and have a great day. Thank you.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.