June 15, 2023 [Gibson Energy]- Gibson Energy Inc. (“Gibson” or the “Company”) (TSX: GEI) announced that it has entered into an agreement to acquire 100% of the membership interests of South Texas Gateway Terminal LLC (“STLLC”) for a total purchase price of US$1.1 billion in cash (the “Transaction”), subject to closing adjustments.

Through the Transaction, Gibson acquires the South Texas Gateway Terminal (“STGT” or the “Terminal”) which is positioned as one of the most competitive liquids terminal and export facilities globally with direct pipeline connections to low-cost, long reserve-life resource supply, and very large crude carrier (“VLCC”) capabilities. The Transaction implies a multiple of less than 9x the projected forward Adjusted EBITDA and is immediately accretive, with DCF per share accretion in the mid-teens^4,5,6.

“Since establishing Gibson as a leading liquids-focused infrastructure company, we have been looking for an opportunity that is a strategic fit, while enhancing our scale and diversity,” said Steve Spaulding, President and Chief Executive Officer. “After much patience and discipline, I am excited to add the world-class South Texas Gateway Terminal to our infrastructure portfolio. This transaction amplifies our high-quality infrastructure revenues and bolsters the continued growth of our distributable cash flow per share. To add 1 mmbbl/d of export capacity and nearly 9 million barrels of terminals storage in a highly strategic location furthers our momentum in growing Gibson’s infrastructure footprint and provides a platform for future growth with existing and new customers.”

South Texas Gateway Terminal

STGT is a newly built, high-quality crude oil export facility, operating a deep-water, open access marine terminal in Ingleside, Texas at the mouth of the Corpus Christi Bay. The Terminal was officially placed in-service and loaded its first vessel in July 2020. In March 2021, STGT completed the final construction phase of incremental storage facilities bringing the total terminalling capacity to 8.6 million barrels of crude oil across 20 tanks. The Terminal is connected to the Permian and Eagle Ford basins through multiple, newly-built pipelines and is strategically positioned to connect these basins to global exports. With two deep-water docks that enable the simultaneous loading of two VLCCs and a permitted throughput capacity of 1 mmbbl/d, STGT is the second largest U.S. crude oil export terminal by capacity and accounted for approximately 12% of the United States’ total crude oil exports in 2023 year-to-date⁷.

The Terminal achieved record volumes of over 670,000 bbl/d of oil in March 2023. Its advantaged location and operational efficiencies, combined with its pipeline-connections to leading North American resources plays, position STGT for continued growth through optimization of existing capacity, and increasing throughput volume. As U.S. crude oil exports grow, driven by production growth from the low-cost, resource-rich Permian basin, Gibson anticipates the potential for future expansions at the Terminal.

On-Strategy Acquisition of Liquids-Focused Infrastructure Business

Through the Transaction, Gibson expands and enhances its North American terminal footprint by establishing a third liquids hub underpinned by over 95% take-or-pay revenue⁸. The take-or-pay counterparties are existing customers of Gibson’s current North American businesses and approximately 85% have investment grade ratings, with the remaining customers being subsidiaries of large, high-quality global companies.

After giving effect to the Transaction, Gibson’s proportion of segment profit from infrastructure is expected to increase to approximately 85%, and its proportion of infrastructure revenue from take-or-pay contracts is expected to increase to approximately 80%^9,10.

Fully Financed Transaction, Structured to Maintain Investment Grade Ratings

Gibson has fully committed bridge financing facilities totaling US$1.1 billion in place with Royal Bank of Canada, BMO Capital Markets, and JPMorgan Chase Bank N.A., Toronto Branch (collectively the “Bridge Lenders”). Permanent financing of the Transaction is expected to be achieved through a $350 million bought deal offering of subscription receipts (the “Equity Offering”) and subsequent offerings of senior unsecured medium-term notes and hybrid debt securities of various tenors (the “Debt Offerings”).

Concurrently, the Company will also be launching an amendment to upsize its sustainability-linked revolving credit facility from $750 million to $1.0 billion and has secured commitments from the Bridge Lenders.

The financing of the Transaction, including the Equity Offering and contemplated Debt Offerings, has been structured to maintain the investment grade ratings and outlooks assigned to Gibson by DBRS and S&P.

After giving effect to the Transaction, the Equity Offering and the Debt Offerings, Gibson expects its Net Debt to Adjusted EBITDA ratio to be approximately 3.2x, within the targeted 3.0x to 3.5x range stated in Gibson’s Financial Governing Principles¹¹.

Closing Expected in the Third Quarter of 2023

Closing of the Transaction is expected to occur in the third quarter of 2023, subject to satisfaction of customary closing conditions, including the expiration or termination of the waiting period under the U.S. Hart-Scott-Rodino Antitrust Improvements Act.

J.P. Morgan Securities Canada is acting as exclusive financial advisor, and Latham and Watkins LLP and Bennett Jones LLP as legal advisors, with respect to the Transaction.

Bought Deal Equity Offering

Pursuant to the Equity Offering, Gibson has entered into an agreement with a syndicate of underwriters (the “Underwriters”) led by BMO Capital Markets and RBC Capital Markets as joint bookrunners, for the issuance of 17,400,000 subscription receipts (the “Subscription Receipts”) on a bought deal basis, at an issue price of $20.15 per Subscription Receipt (the “Offering Price”) for total gross proceeds of approximately $350 million. Gibson has also granted the Underwriters an option, exercisable, in whole or in part, at any time up to the earlier of 30 days following the closing of the Equity Offering and the occurrence of certain termination events with respect to the Subscription Receipts, to purchase up to an additional 15% of the number of Subscription Receipts purchased by the Underwriters under the Equity Offering at the Offering Price to cover over-allotments, if any, and for market stabilization purposes (the “Over-Allotment Option”).

The gross proceeds from the Equity Offering, less the portion of the underwriters’ fee that is payable on the closing of the Equity Offering, will be held in escrow and are intended to be used by Gibson to fund a portion of the purchase price for the Transaction.

Each Subscription Receipt will entitle the holder to receive, without payment of additional consideration and without further action, one common share of Gibson (a “Common Share”) upon the closing of the Transaction.

If the Transaction closes, a dividend equivalent payment will be made to holders of Subscription Receipts of an amount per Subscription Receipt, as applicable, that is equal to the amount per Common Share of any cash dividends declared by the board of directors of Gibson on the Common Shares to holders of record on a date during the period from, and including, the closing date of the Equity Offering to, but excluding, the closing date of the Transaction, net of any applicable withholding taxes (the “Dividend Equivalent Payment”). The Dividend Equivalent Payment will be made on the later of the closing date of the Transaction and the date the dividend is paid to holders of Common Shares. In the event that the Transaction does not close, holders of Subscription Receipts will not be entitled to receive any Dividend Equivalent Payment.

The Equity Offering is expected to close on or about June 22, 2023 and is subject to certain conditions including, but not limited to, the receipt of all necessary approvals including the approval of the Toronto Stock Exchange.

Further information regarding the Equity Offering and the Transaction, including related risk factors, will be set out in the prospectus supplement to Gibson’s short form base shelf prospectus dated August 16, 2021, (collectively, the “Prospectus”) that Gibson expects to file on SEDAR on or before June 16, 2023. The Equity Offering will be made in all provinces of Canada under the Prospectus and on a private placement basis in the United States pursuant to exemptions from the registration requirements of the U.S. Securities Act of 1933, as amended. Investors should read the Prospectus before making an investment decision.

Bennett Jones LLP and Latham and Watkins LLP are acting as legal advisors to the Company with respect to the Equity Offering. Norton Rose Fulbright Canada LLP is acting as Gibson’s legal advisor with respect to the bridge financing obtained in connection with the Transaction and the Debt Offerings.

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