Gibson Energy Inc. is refining its expected 2019 capital budget to between $230 million and $280 million, reflecting growth projects the company has added since the start of this year.
“The increase would include the Phase 4 tankage [at Hardisty] we sanctioned in March, as well as several ‘inside-the-fence’ projects at our terminals,” Sean Brown, senior vice-president and chief financial officer, said on an Aug. 7 second quarter conference call. Also, he said, Gibson will proceed on foundation work for two remaining “Top-of-the-Hill” tanks.
“While only a small portion of the total cost of the tanks, this will allow us to take advantage of the ongoing work at the Top of the Hill and maintain a schedule for delivery in the second half of 2020.”
The company’s initial 2019 growth capital expenditures budget was in the $200-$250 million range. As for next year, during this morning’s conference call management informally suggested its 2020 capital spending could range between $200 million and $300 million.
“We haven’t formally come out with that,” said Brown. “It’s just based on sort of what we see from commercial discussions to date and what we’ve sanctioned to date.”
Gibson continued to deliver strong operational and financial results in this year’s second quarter, management says, while also advancing on a strategy that includes completing its non-core asset disposition process.
“We also reached another major milestone recently with the receipt of our second investment grade credit rating, which will improve our access to the capital markets and reduce our cost of capital,” said Steve Spaulding, president and chief executive officer.
Company boosts revenue and earnings for Q2 2019
Management remains confident in Gibson’s ability to keep executing on its strategy, advancing several commercial opportunities on both sides of the border and continuing to be fully-funded for all sanctioned capital with its leverage and payout ratios well below target levels.
“This was another strong quarter from both an operational and financial perspective,” said Spaulding. “We continue to execute. We are very focused on the delivery of capital projects.”
For the three and six months ended June 30, 2019, Gibson reported revenue of about $1.928 billion and $3.676 billion, respectively, which is 12 and eight per cent more than during the comparative 2018 timeframes.
Net income in Q2 and the first half of 2019 totalled $34.69 million and $93.37 million, respectively, which is up 128 and 245 per cent from the same periods one year prior. Marketing segment profits were $37.9 million and $99.1 million for the three and six months ended June 30, 2019, respectively, compared to $28.1 million and $55 million for the same 2018 periods.
Gibson sells trucking business
Just after the second quarter, Gibson announced the closing of the sale of its Canadian truck transportation businesses to Trimac Transportation for gross proceeds of approximately $70 million prior to customary closing adjustments, with the potential for additional proceeds depending on the performance of the business in the upcoming years.
Gibson expects to close the sale of its field office and shop facilities by the end of Q1 2020, subject to satisfaction of certain conditions, with Trimac using the properties under a lease arrangement in the interim period.
“We continue to execute our strategy,” Spaulding said. “In April, we entered an agreement to sell our Canadian truck transportation business. At the beginning of July we closed the transaction. We have now finished our noncore disposition and completed our transition into an oil-focused infrastructure company.”
New Saskatchewan incentive program benefits Moose Jaw Refinery
Gibson’s Moose Jaw Refinery became the first successful applicant of Saskatchewan’s newly-introduced oil and gas processing investment incentive — a program to enhance oil and gas development competitiveness in the province by enabling increased capacity in value-added processing and infrastructure.
Saskatchewan’s new incentive provides successful applicants with a 15 per cent transferrable royalty credit, applied to eligible costs directly related to an eligible greenfield or brownfield project.
According to Premier Scott Moe, establishing functional, practical incentives through collaboration with industry stakeholders is how the province will attract investment, create jobs and support long-term sustainable growth within its energy sector. As announced last week, this incentive supports oil and gas producers and value-added companies so as to grow and generate more value from their operations in Saskatchewan.
“This incentive will help the sector increase throughput capacity and grow value-added processing, while [also] overcoming operational challenges associated with effectively managing emissions,” Moe stated in a provincial news release. The program supports improved greenhouse gas (GHG) emissions management projects in the sector.
For the Moose Jaw facility, which processes heavy crude to produce a variety of refined products such as distillate and asphalt, Gibson’s debottlenecking project, completed on June 29, increases throughput capacity by approximately 30 per cent — from 17,000 to 22,000 barrels per day — with no GHG emission increase, thus ultimately reducing emissions per bbl of oil processed at the refinery by roughly 20 to 25 per cent.
With the Moose Jaw expansion coming into service, Brown told analysts on conference call, Gibson will also realize greater profits within refined products.
Capex projects during the quarter and into the future
During the three and six months ended June 30, 2019, Gibson incurred growth capital expenditures of $59.12 million ($49.37 million in Q2 2019) and $100.2 million ($75.75 million in H1 2018), respectively, largely to build tanks and related infrastructure for Hardisty and Edmonton terminals and for Viking and U.S. pipelines.
As mentioned, Gibson is working on several major growth projects within its infrastructure segment, including advancing construction of five tanks totalling 2.5 million bbls of storage and representing a 25 per cent Hardisty Terminal expansion. Crews should complete construction and have in service the second and third phases of the project’s Top-of-the-Hill portion by the end of 2019.
Spaulding said: “With our existing infrastructure, connectivity and capacity to load more than three unit trains per day, we are in a unique position to provide a solution for Canadian bitumen production.”
Foundation work for a fourth phase of the project should begin this summer, with the tank entering service in the fourth quarter of 2020. Other growth projects include construction of the Pyote pipeline and related infrastructure in the U.S., which crews continue to develop and should bring into service in late September or early October of this year.
“This will be the first infrastructure asset that Gibson Energy has ever built in the U.S.,” the CEO added. “It’s a big win for us, and it comes far sooner than we ever expected when we laid out our plan at the investor day in 2018.”
In Q2 2019, Gibson also placed into service the expansion to its facility in Moose Jaw, which was completed on budget and ahead of schedule.
“The expansion included heat integration that would require no additional heat for the additional throughput,” said Spaulding. He added that Moose Jaw Refinery is “a natural fit with the rest of our business,” as it provides a “strategic hedge in the case that pipelines are not built, and it helps fund our infrastructure growth.”