Gibson Energy Inc. has announced that its Board of Directors has approved a 2016 growth capital expenditure budget ranging between US$200 million and US$300 million. Additionally, the Board of Directors approved US$50 million allocated to upgrade and replacement capital expenditures.
"Following a disciplined budgeting process, the lower end of Gibsons' 2016 growth capital expenditure plan will be solely focused on the multi-year expansion projects that are currently underway in our terminals and pipelines segment. These projects represent our highest risk-adjusted return opportunities and are largely underpinned by long-term, take-or-pay contracts," said Stewart Hanlon, Gibsons' President and Chief Executive Officer. "The higher end of the growth capital spending range includes incremental, but not yet contracted, opportunities in terminals and pipelines and only a modest allocation to projects within our other business segments that are discretionary in nature."
2017 growth capital spending estimate
Based on an expectation that energy sector fundamentals will require the majority of 2016 to recover before industry profitability and activity levels improve, the Company is estimating that growth capital expenditures in 2017 will be similar to 2016 in the $200 million to $300 million range.
"While we remain mindful of the currently weak conditions in the energy sector, we are confident that prudent capital allocation and continued efforts to streamline our cost structure will provide us with the flexibility to successfully navigate today's environment. We are focused on completing the terminal expansion projects currently underway at both Edmonton and Hardisty. With construction proceeding according to plans, we look forward to the successful commissioning of these projects, which will deliver growing, high quality and increasingly stable cash flows for our shareholders. Specifically, upon commissioning of the final tranche of these projects in mid 2017, our cash flow quality improves such that 30% of total Company segment profit will be earned from long term take-or-pay contracts," said Hanlon. "Looking forward, we continue to engage in meaningful dialogue with our customers about their midstream infrastructure requirements and we anticipate securing incremental commercial agreements as we progress into 2016."
"We expect to manage our capital spending within our cash flow from operations and available credit facilities," said Donald Fowlis, Gibsons' Chief Financial Officer. "Considering the strong certainty of cash flows associated with the projects included in our 2016 capital spending plan, we remain comfortable with our dividend payout ratio during the construction phase of our terminal expansion projects."
Edited from source by Stephanie Roker
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