Gibson Energy Inc

TSX:GEI

Earnings Call Transcript 2022-Q4

[Operator]

Good morning. My name is Michelle and I will be your conference operator today. At this time, I would like to welcome everyone to the Gibson Energy Q4 2022 Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. [Operator Instructions] Thank you.

Mr. Chyc-Cies, you may now begin your call.

[Mark Chyc-Cies]

Thank you, operator. Good morning and thank you for joining us on this conference call discussing our fourth quarter and full year 2022 operational and financial results. On the call this morning from Gibson Energy are Steve Spaulding, President and Chief Executive Officer; and Sean Brown, Chief Financial Officer. Also in the room, from the senior management team are Sean Wilson, Senior Vice President and Chief Administrative and Sustainability Officer; and Kyle DeGruchy, Senior Vice President and Chief Commercial Officer. Listeners are reminded that today’s call refers to non-GAAP measures and forward-looking information. Descriptions and qualifications of such measures and information are set out in our continuous disclosure documents available on SEDAR.

Now, I would like to turn the call over to Steve. Steve?

[Steve Spaulding, President and Chief Executive Officer]

Thanks, Mark. Good morning everyone, and thank you for joining us today. With our solid fourth quarter results, we’ve delivered a strong year from our business in which we set several new high watermarks. In our Infrastructure segment, which posted four consistent quarters this year, we reached a new high for adjusted EBITDA of $442 million. If you look over the last five years, we’ve nearly doubled our Infrastructure cash flows, which have grown at a 14% compounded annual growth rate during this time period. If you think about having invested over $1 billion in capital during these last five years, this also very much proves out that we did in fact realize our target of five to seven times EBITDA build.

For consolidated businesses, adjusted EBITDA of $521 million is a high watermark. This was a combination of a strong consistent infrastructure performance that I spoke of as well as marketing business ability to return to levels in line with our long-term run rate. Our distributable cash flow of $356 million also represents the strongest year ever for Gibson. As the adjusted EBITDA, distributable cash flow has roughly doubled since 2017. And importantly, as our share count has remained effectively flat from 2017, that translates into a per share compounded annual growth rate of 14%. And recall, our target when we rolled out our strategy in early 2018 was to target a 10% per share growth rate.

In terms of our balance sheet, these results further improved our already strong financial position. Our leverage ratio decreased through the year to 2.7x, which is below the bottom end of our target range. And our payout ratio has decreased to 60%, which is also below the lower end of our target range of 70% to 80%. Given the solid financial position and strong business performance, we were very active with our share repurchases in 2022. During the year, we bought back 146 million, which is just over 4% of our outstanding shares. We will continue to act on our commitment to return capital to our shareholders when appropriate within our capital allocation framework with a target of buying back at least $100 million in 2023.

And consistent with our capital allocation framework, we’ve increased our dividend by $0.02 per share per quarter, which is a bit over 5%. We continue to see significant value in offering our shareholders modest and consistent dividend growth. We see it as reflecting the continued growth of our long-term, stable, infrastructure cash flows and our significant head run on our infrastructure only metrics. Between our dividend and our buybacks, we’re offering shareholders annual return of capital of roughly 10%, which we think is very competitive within the infrastructure space.

And to speak to how we continue to grow those infrastructure cash flows, at our Edmonton Terminal, we placed the biofuels blending project in service during the second quarter. The project was delivered ahead of schedule and on budget and was fairly sizable. In terms of capital cost, the project was roughly equivalent to 1.5 tanks, 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 needs in energy transition fuels, and are hopeful in our ability to sanction a similar sized, follow-on project later this year.

At Moose Jaw, not only did we safely and successfully complete our turnaround, but we also used the downtime as an opportunity to perform required connections to complete an ESG positive fuel switching project. As a result, when the facility reentered service, capacity was increased roughly 10%, bringing us to 24,000 barrels a day with our net fuel cost decreased and our emissions intensity decreased by 15% per barrel.

In terms of the business, our major focus right now is on securing additional growth projects. We continue to see the impacts, the lack of production growth first coming out of COVID and now in this capital discipline environment. Our goal remains to deploy $150 million to $200 million per year, and we’re increasing our commercial focus by developing a new ventures team to review and develop opportunities outside our existing footprint and in energy transition.

In terms of sanctioning the next round of capital at Edmonton, we continue to hold discussions for additional tankage. We believe Gibson is very well positioned to support shippers on TMX, optimize crude net backs and meet stream requirements. We remain optimistic that we can sanction at least two additional tanks. In terms of timing, clear visibility to a TMX in service date remains important to several of our potential customers, meaning sanctioning decisions are likely to be made by mid-year 2023. Also, we continue to advance discussions on additional infrastructure opportunities that could help supplement our capital investments in 2023 and in future years.

On the ESG front, during the year, we continue to advance our ESG journey here at Gibson. With the release of our second sustainability report, we believe that the report showcases the progress we’ve made, embedding sustainability into our business and the culture, as well as the meaningful work towards an ambitious 2025 and 2030 targets and our roadmap to net zero. We also received the company’s third A minus in a row from CDP, the Carbon Disclosure Project, which signifies Gibson’s continued sustainability leadership.

On the safety side, we’re maintaining the best health and safety performance in our – in our company’s history. We view both our lost time injury frequency and our recordable vehicle incident frequency rates of zero for employees and contractors for the third year in a row as outstanding results. Also, we continue to maintain our target and top quartile safety performance among our peers in our total recordable injury frequency or TRIF, with a rate of 0.46 for employees. That said, we remain vigilant, we will not become complacent and continue to evolve our safety culture and focus on achieving zero instance.

It’s also worth noting achieved our board diversity targets and one of our senior leadership targets, having at least one racial and ethnic minority or indigenous person on the board, having 40% women on the board, both ahead of our 2025 target dates. Having at least one racial or ethnic minority person or indigenous person hold an SVP role or above.

Speaking of diversity and inclusion, we were honored to be recognized as one of Alberta’s top 75 employers. We’re also proud of our commitment to the communities we operate in and around, having made $1.5 million in contributions to nonprofit organizations with the average employee having volunteered 14 hours last year.

In terms of meaningful opportunities that we are focusing on as we continue our journey, we recently released our indigenous engagement principles, which will help us advance our indigenous relationship, our relations efforts and further our relationships with indigenous communities in and around the areas in which we operate.

To close, the business certainly delivered a solid quarter that capped a very strong year. Infrastructure reached a new high with strong consistent performance across the asset base. With the strong second half, the marketing segment was to come in at the high end of our long-term run rate and as a result, our strong business performance, we stayed true to our commitment to return capital to our shareholders through the buyback of $146 million and the increase of our dividend by 5% and our expectation to buy back an additional $100 million this year.

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

[Sean Brown, Chief Financial Officer]

Thanks, Steve. As Steve mentioned, another solid quarter to finish up a record setting year. Infrastructure adjusted EBITDA of $110 million this quarter was in line with not just the third quarter of this year, but also the first and second quarter, which really speaks to the stability of cash flow we see from this part of the business. As always, a little movement within each of the parts that make up our infrastructure segment, but overall, once again, a very consistent result, which is what we like to see from an infrastructure business.

Comparing this quarter to the fourth quarter of 2021, infrastructure adjusted EBITDA increased by about $4 million. As revenues at Edmonton benefited from additional infrastructure and service, as well as entering into the Suncor MSA, a higher contribution from Canadian Pipelines and a higher contribution from both of our equity investments, which would be the DRU and the Joliet terminal.

In the Marketing segment, adjusted EBITDA of $37 million was ahead of the outlook we provided on our last quarterly call. On the Refined Products side, the fourth quarter was similar to the third quarter of this year with continued strength seen in both drilling fluids and tops. On the Crude Marketing side, results were not as strong as the third quarter, though we still had a notable contribution from quality-based opportunities.

Relative to the fourth quarter of last year, this quarter’s results were a $32 million improvement with the majority of the improvement from Refined Products, but also a smaller increase in crude marketing. In terms of our outlook for marketing, the environment for refined products remains positive, and we are constructive around the opportunities we see within our crude marketing business. As such, we would expect adjusted EBITDA of $40 million or higher in the first quarter.

Finishing up the discussion of the results for this quarter, let me quickly work down to distributable cash flow. For the fourth quarter, we reported distributable cash flow of $88 million, which was a $24 million increase from the fourth quarter of 2021 and a $26 million decrease from the third quarter of this year.

The majority of the differences would be from the marketing performance as I discussed. In terms of smaller drivers, the third quarter of this year benefited from a positive FX impact while taxes this quarter were higher than in the fourth quarter of last year, due to much stronger marketing results increasing taxable income.

Given it results a year-end, let me quickly compare results between the two years. On the infrastructure side, as we mentioned, it was another record year. Well, adjusted EBITDA was a $6 million increase from 2021 that year had benefited from a net $15 million or so in one-time items. So on an underlying business basis, 2022 was a much stronger year than the headline results would indicate for the Infrastructure segment.

In terms of the main drivers of that increase, it would be higher contributions from the Edmonton Terminal and Canadian Pipelines, as well as a full year of operation for the DRU. Marketing increased from $43 million in 2021 to $118 million in 2022, a $75 million increase. The largest driver was the refined products business, but clearly crude marketing also had a much better year despite limited locational and time-based opportunities.

As such, 2022 adjusted EBITDA increased by $76 million to $521 million, which was also a new high watermark. And on a distributable cash flow basis, the 2022 figure of $356 million was also a new high. Most of the $65 million increase relative to 2021 was driven by the factors I already described, as well as some FX gains this year, partly offset by higher taxes and interest costs.

In terms of our financial position, our payout ratio now sits at 60%, which is well below the bottom end of our 70% to 80% target range. Our debt-to-adjusted EBITDA of 2.7 times, which is below the bottom end of our 3 to 3.5 times target remains flat from last quarter and is a decrease of half a turn from the end of 2021.

This improvement was primarily driven by the meaningful increase in EBITDA year-over-year, though net debt did decrease slightly over the course of the year. We also look at our leverage on an infrastructure only basis. Using that lens, our leverage at 3.5 times and our payout ratio would be approximately 68%, where we seek to be below 4 times and a 100% respectively under our financial governing principles.

Also, I would quickly note that remain very well-positioned in terms of our debt maturity profile. Fixed-rate notes comprise the 85% of our current long-term debt, and the weighted average coupon in our senior unsecured notes is just over 3% with no maturities until 2025. As such, we feel very well-positioned the current higher interest rate environment, though we continue to be proactive with our capital structure including through our recent extension of our sustainably linked revolving credit facility to 2028, so certainly a very strong financial position.

And taking an account that financial position and the consistent performance of our infrastructure business, as well as the uplifted marketing results we saw through the year, we continue to adhere to our capital allocation philosophy. We bought back $146 million in shares in 2022. This repurchase of 6 million shares represent over 4% of shares outstanding at the start of the year, and is an amount we view as particularly notable relative to peers. And we remain committed to continue our buyback into 2023. We’ve remained active to the start of the year currently targeting up to $100 million this year. At current share prices, that would be an incremental 3% of shares outstanding.

Given this continued elevated rate of buybacks, we feel that combined with our track record of per share growth and our attractive dividend, we provide strong line of sight to total returns for our shareholders. And on the dividend, as Steve mentioned, we have also increased our return of capital to shareholders through a dividend increase of an additional $0.02 per share per quarter or a 5% increase.

With this increase, our annual dividend grows to $1.56 per share. We view this dividend as very solid, given we see it as backstop by our long-term stable infrastructure earnings. And with an infrastructure only payout ratio of 68% relative to a cap of a 100%, we certainly have headroom to continue to adhere to our preference of offering stable modest dividend increases in the years to come.

In summary, the results in both the fourth quarter and the full year were solid. Infrastructure results were strong and consistent throughout 2022, including in the fourth quarter setting a new high water mark for the year. Marketing had a strong recovery in 2022, finishing in the top end of our long-term run rate, and we expect to have a nice start to 2023 for that part of the business.

And with our solid financial position, our continued ability to return capital to shareholders through a safe growing dividend, as well as the significant share buybacks we’ve executed to date and intend to execute on this year results in a very strong value proposition for investors.

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

[Operator]

Thank you, sir. Ladies and gentlemen, we will now begin the question-and-answer session. [Operator Instructions] Your first question will come from Linda Ezergailis at T.D. Securities. Please go ahead.

[Linda Ezergailis, T.D. Securities]

Thank you. Congratulations on a strong year. I’m wondering – if you can help me. Hi, can you hear me?

[Steve Spaulding, President and Chief Executive Officer]

I can.

[Linda Ezergailis, T.D. Securities]

Okay, thank you. Just wondering when the board deliberates on a dividend going forward, how much do they value the consistency of dividend growth versus just ensuring the dividend is at a sustainable level as we look beyond this year?

[Sean Brown, Chief Financial Officer]

Thanks, Linda. It’s Sean here. I mean, clearly both of those would be key considerations. I mean, at the end of the day, you’re only going to increase your dividend if your financial profile justifies it. So, you’re not so absolute in that the dividend has to grow. I mean, the underlying fundamentals have to support a steady, modest dividend increase, which we certainly think is the case. We’ve said it before that both the Board and management think that there’s real value and that’s steady and modest dividend increase, but the financials have to certainly support that. So that would be the first principle. But we certainly think that we have seen that if you see the 14% distributable cash flow per share growth that Steve talked about in the prepared remarks and our visibility to continued growth moving forward.

[Linda Ezergailis, T.D. Securities]

Thank you. And just as a follow-up. With such a strong outlook for the first quarter in marketing, at what point might you be confident that you’ll beat your run rate range this year?

[Steve Spaulding, President and Chief Executive Officer]

I’ll do that. Well, Linda, it’s good talking to you this morning. I would say it’s way too early because it’s the first quarter. We have done three really consistent quarters in a row. So we’re excited about the potential of being in the upper range in that $80 million to $120 million, but we’re still very early in the year. And as you know, things can go better or worse going forward.

[Linda Ezergailis, T.D. Securities]

Thank you. Yes. And just a quick accounting question maybe for Sean. Your depreciation has changed. Curious to get some more context around which types of assets lives were extended and what was the catalyst? Was it maybe with the increased commodity price outlook? Any sort of geopolitical shift or maybe of you on repurposing assets for the energy transition?

[Sean Brown, Chief Financial Officer]

Actually none of the above, Linda. But I mean, the types of assets, think of really like our tanks and associated infrastructure, the pipelines, things like that. Really what this was is our asset integrity team taking a look at the depreciable lives of our assets. We look at it every year. We took a much finer lens to it this year, and what we discovered is that just the depreciable lives that we had or that we were using for our assets were just actually quite frankly, much too low for what we are observing with the assets and certainly what we are observing relative to our peers.

So I think even if you looked at the revised depreciable lives, it would actually still be on the low end of what we would observe relative to our peers. But actually had almost no impact or there was no sort of impact vis-à-vis current market environment, really anything external. It was 100% focused on our asset integrity team looking at our assets, looking at what we’d observed over time using their experience and observing what the depreciable lives utilized by our peers was.

[Linda Ezergailis, T.D. Securities]

Thank you. I’ll jump back in the queue.

[Steve Spaulding, President and Chief Executive Officer]

Thank you.

[Operator]

Your next question comes from Robert Kwan of RBC Capital Markets. Please go ahead.

[Robert Kwan, RBC Capital Markets]

Great. Good morning. If I can just ask around some of the projects or the potential projects and the first being the tankage in Edmonton. You talked about your potential customers needing a clear path to TMX completion. I’m just wondering specifically, what do you think they need to see out of TMX to go forward?

[Steve Spaulding, President and Chief Executive Officer]

I think just more certainty on just the startup date. They have much more clear line of sight to that than we do at shippers. And so they understand their needs and when they’re going to need the tankage. So it’s their lens. It’s their lens that we’re looking through, not ours.

[Robert Kwan, RBC Capital Markets]

Okay. And then just in terms of additional DRU phases, it’s obviously drew out through 2022. Do you think that at this point they need clarity both on TMX and the impact on the market as well as the mainline tolling framework?

[Steve Spaulding, President and Chief Executive Officer]

Let me turn that over to Kyle, our Chief Commercial Officer.

[Kyle DeGruchy]

Yes, Robert. I’d say that I think that, mainline tolling would be a part of it. I mean, I think as we’ve said before, I mean DRU in particular is those contracts are complicated. There’s a few variables to get right there. And so I think what they’re thinking about right now is really just all the egress. I mean, you look at TMX and you look at the mainline tolling. Right now, egress is not necessarily a problem. So if you look at the arbitrage, selling at the hubs, north of the border makes sense right now. So, I think all of those things are factors that they’re considering right now. We still think DRU is compelling alternative to pipe, and but I would expect that, that those things are being weighed right now and we’d kind of expect that to be sort of a later in the year, greater line of sight, but those are type of the things that they’re looking at right now. So mainline would be part of it, but more holistic view on egress, I think is what I would point to.

[Robert Kwan, RBC Capital Markets]

Got it. And if I can just finish with your new ventures team. Steve, you talked about at this quarter, you mentioned at this quarter, you also talked about it last quarter. So, I’m just wondering, just the work that they’ve done to date, any early findings, has there been any evolution of thought on how you would approach commercial frameworks for new businesses as well as just the buy versus build decision?

[Steve Spaulding, President and Chief Executive Officer]

Well, on the team, we’re just now placing the people in the seats. We’ve placed one last week; we got another one coming in, in about two weeks. So, we’re just placing people in the seats there. Really kind of a broad, they’re bringing broad ideas that we haven’t thought of in the past. I can’t really share those with you, but they are coming up with opportunities that we really haven’t been exploring in the past that do that, that fit in the energy transition that we believe we could be successful in the long run.

[Robert Kwan, RBC Capital Markets]

Okay. And I get, you don’t want to get into too many details at this point, but when you talk about [indiscernible] can you broadly talk about why you wouldn’t have thought about some of these ideas in the past? Is it just you didn’t know they existed, or just a new way of thinking of how to leverage your existing footprint?

[Steve Spaulding, President and Chief Executive Officer]

What’s that? I think it’s not our existing footprint. I think you should – as you get people in the door that have a death and experience, they bring ideas and relationships that we didn’t have before.

[Robert Kwan, RBC Capital Markets]

Okay. That’s great. Thank you very much.

[Operator]

Your next question comes from Robert Catellier of CIBC Capital Markets. Please go ahead.

[Robert Catellier, CIBC Capital Markets]

Hey, good morning. I think maybe I’ll follow up on that last question, and sorry if this is a little bit repetitive, but you’ve mentioned the energy transition as an area that maybe you can target with the new ventures team. I wonder, if there’s any specific areas where you feel the company has either an expertise or an asset footprint advantage that can be exploited particularly to energy transition?

[Steve Spaulding, President and Chief Executive Officer]

We looked at the HRD last year pretty hard. We do think we have the organizational capability to do HRD, of course, the U.S. moving forward with the IRA, that kind of that puts some definitely hold on the project here in Canada, and it does make it a better opportunity down in the states. So HRD itself is something that we have the organizational capability to do. So looking forward, we’ll continue to look at those type of opportunities and try to how do we reduce the risk on any commodity exposure if we did ever move forward with a project like that. But if here in Canada, we’re going to need different governmental support to build a project.

[Robert Catellier, CIBC Capital Markets]

Yes, that’s understandable. And just to follow that up a little bit. Do you think there’s any impact of by America on some refinery product sales, for example materials used in roads and bridges?

[Steve Spaulding, President and Chief Executive Officer]

I’ll let Kyle take that.

[Kyle DeGruchy]

Yes, I mean, I think that we’ve kind of heard that there’s nothing really I would say material that I think is coming in scale at the moment. I mean, it’s something that we keep an eye on. Obviously, we’re in that business. In the event, there was an opportunity we would look at it. But I would say that nothing at the moment that I would say is in scale that would be, we can replace any of that. But I mean, as you mentioned, it’s – we’ve heard similar narratives, but not the material as of right now.

[Steve Spaulding, President and Chief Executive Officer]

Yes. And Robert, if the federal government – that’s a federal government policy, right? So what they’re doing is on federal roads and interstates. So if they’re giving it a larger demand for asphalt, that just means a whole market has a larger demand. We may not be able to sell into that market, but we can sell into the other markets that’s getting pulled into. So…

[Robert Catellier, CIBC Capital Markets]

Yes. Okay. I understand that. And then just a couple quick questions for Sean here. First one, I almost hate to ask, but at what point do you become concerned that you’re too under levered? And how long are you willing to remain patient or do slightly more aggressive on the repurchases like a substantial issuer bid?

[Sean Brown, Chief Financial Officer]

I’d say, it’s tough to see a point where I feel like we’re actually too under levered to be honest. I think, we have a relatively conservative view to leverage. We’re 2.7 times relative to the three to three and a half target. We have been and will continue to be at the low end of leverage as it relates to our peers. And we think that makes sense and we think it has behooved [ph] us as we’ve moved through.\

What has been a couple different cycles, certainly since this business has transformed. So currently at 2.7 times, that’s also as a reminder, relatively strong marketing results, go backwards, not even sort of 12 months to 18 months. And that business was performing somewhat differently and the leverage profile would’ve been different. So I think, 2.7 times it certainly would not be prudent to jack that up at this point in time because things can always change, which we know and we think something that benefits the company and our shareholders is having that conservative leverage profile.

[Robert Catellier, CIBC Capital Markets]

Yes, I can’t blame you at all for that. And last question for me is more of a curiosity here. But it looks like your credit facility was extended for the second time in relatively rapid succession. So I’m curious as to what’s driving that and whether or not there’s any amendments of consequence that were made to the facility subsequent to the year end?

[Sean Brown, Chief Financial Officer]

No. No. That’s actually a great question, Robert. So we did extend our credit facility a close on February 10. We typically extend our credit facility more on the March-April timeframe. So you’re absolutely right, this one was accelerated somewhat. As I think you would’ve seen throughout certainly, pre- and post-pandemic, we’ve always been fairly prudent as we’ve considered our credit facility. Feedback that we had been getting is that perhaps pricing would start to increase on credit facilities and there’d be more pressure as we move forward given that we thought it made sense to accelerate our extension by a month or two to try and get ahead of that.

If that’s the case, I mean, we are successful in extending our credit facility with all of our existing syndicate banks at pricing the exact same as it was before. So I view that as being a success, and if anything, it was really just more a proactive move to try and get ahead of what we are hearing could potentially be some increases in pricing as you move throughout the year.

[Robert Catellier, CIBC Capital Markets]

Okay, thanks very much.

[Operator]

Your next question comes from Ben Pham of BMO. Please go ahead.

[Ben Pham, BMO]

Hi. Thanks. Good morning. Maybe back to the new ventures team and maybe thinking about when you do look at maybe potentially maybe a new geography, if that’s – that’s in the lens looking at. How large does it have to be that new geography is, let’s say a percent of EBITDA for you to actually put the effort and time into it?

[Steve Spaulding, President and Chief Executive Officer]

We’ve looked at it that way, Ben. I think – I think we’re looking for opportunities that are kind of right size for us. If we take really large chunks, then we’re going to want a lot more security of revenue. If the security revenue is smaller, then we’ll probably do a smaller projects right, because we don’t want to get out in front of our skis.

[Ben Pham, BMO]

Okay. So it sounds – it sounds like any potential new opportunity then beyond traditional, you would plan to fund out on your balance sheet?

[Steve Spaulding, President and Chief Executive Officer]

Yes. I mean, it really depends on the opportunity, Ben. I mean, at the end of the day we do fundamentally believe and being fully funded within existing cash flows. That wouldn’t change for this new ventures team, but at the same time it depends on the opportunity and relative merits of that. So I think – I think it’s tough to be completely myopic around, what the parameters may look like without knowing what the exact opportunity is. But in general, we have and we continue to believe that being fully funded within your own means is absolutely fundamental to the value proposition we’re offering.

[Ben Pham, BMO]

Okay. Got it. And then – and maybe the last on cap – sorry may maybe last on capital allocation. I get the infrastructure driving the dividend growth on share buybacks. Is there any – what’s the thought process that being lower this year versus last year when your marking looks like it’s, I know it’s still early in the year, but it looks like it could be maybe even comparable to last year?

[Sean Brown, Chief Financial Officer]

You absolutely nailed it, Ben. It’s just early in the year. If you think about the cadence, as we talked about share buybacks last year, our target to start the year was actually that same $100 million. And as we moved this through the year and had more visibility on where capital was ending up and marketing was ending up, those are really the two levers. So with marketing performing quite well and capital coming in, certainly at the lower end of what we are hoping that’s what drove the larger buyback. Our hope certainly this year is that capital will move to the high end of our range or higher and we can deploy that capital towards growth capital as opposed to buyback and we hope marketing will outperform again. So, I mean, it’s just, we’re a month and a half into the year and so it’s too early to say, but those are really the factors that will influence it as we move through the year.

[Ben Pham, BMO]

Okay. Got it. Thank you.

[Operator]

[Operator Instructions] Your next question will come from Andrew Kuske of Credit Suisse. Please go ahead.

[Andrew Kuske, Credit Suisse]

Thanks. Good morning. I guess the first question is just about your balance sheet, and not to be patronizing about it, but you’ve done a good job with de-leveraging things, and given the shift we’ve seen in the yield curve and you just look around generally across the lay of the land. Do you anticipate some others really running into trouble with their sort of misfinancing of assets and really carrying too much debt and now being squeezed by interest payments that, that may cough up some assets in the market or provide you some opportunities that maybe otherwise wouldn’t have been there?

[Steve Spaulding, President and Chief Executive Officer]

I mean, we could always be hopeful. I mean, we’re not here to opine on how other people have managed their capital structure or what that may mean. Certainly there are some asset packages that have been rumored to be coming to market, but and to the extent that they do as you know it Andrew, I mean, we’ve got a fantastic balance sheet that we could certainly utilize to take advantage of that. But I mean it’s tough for us to really speculate on what may or may not happen to other people. We’re really focused on keeping our balance sheet pristine and making sure that sets us up well for success.

[Andrew Kuske, Credit Suisse]

Okay. Appreciate that. And then just in that longer term context of managing the business and you think about your pathway to net zero, how do you conceptualize, the cost of carbon escalating in Canada and really the cost of abatement? Is it a straight NPV for you? Or how do you really think about that?

[Steve Spaulding, President and Chief Executive Officer]

Yes, I mean, it’s for us we’ve got net zero targets. There’s going to be some measure of a cost to that. But again, it’s something that we think we can do. We actually, if you think of it, how we’re going to get there, we’ve already gotten there partially through Moose Jaw. It’s going to be through things like you think better Scope 2 PPAs, which actually, don’t actually have an outlay. It’s more avoidance or replacement of existing costs. So, as we think about net zero, we do recognize that there will be some cost to achieve it, but we think it’s something that it is certainly understandable and something that is well within our means.

So again it’s, tough to be absolutely myopic unaware that’s going to be, I mean, as we’ve talked about before, we think with existing technologies we can get about 90% there. So there’s still a little bit 10% that we need by the time we hit 2050 to figure out. But again, we think that’s certainly well within our meetings.

[Andrew Kuske, Credit Suisse]

Okay. I appreciate that. Thank you.

[Operator]

There are no further questions. So, I would now like to hand the call back to Mark for any closing remarks.

[Mark Chyc-Cies]

Thanks, Operator and thanks everyone for joining us for our 2022 fourth quarter and full year conference call. Again, I would like to note that we have made that certain information available on our website at gibsonenergy.com. And as always, if you have any further questions, please do reach out at [e-mail]. Thanks everyone, and thanks for your continued support to Gibson. Have a great day.

[Operator]

Ladies and gentlemen, this does conclude your conference call for this morning. We would like to thank everyone for participating, and would you kindly disconnect your lines.