February 21, 2022 [Daily Oil Bulletin] – Gibson Energy Inc. believes its Hardisty, Alberta terminal is ideally positioned to respond to the increased need for operational crude oil storage to manage egress issues out of Western Canada with the continued growth in oilsands production, says a senior executive.
“A great example would be the recent Keystone outage when production backed up into the Hardisty terminal,” Michael Lindsay, senior vice-president of operations and engineering, told the company’s investor day Tuesday in Toronto.
Because of the integrated nature of Gibson’s Hardisty operations, customers were able to nominate their production down other pipelines, had the option of a unit train or were able to do transactions within the terminal itself to manage their operational needs, he said. “That flexibility gave a huge advantage to our customers.”
The company Tuesday announced that it was selling its Canadian trucking and environmental services, NGL wholesale and U.S. injection stations and truck transportation businesses to focus on crude oil infrastructure (DOB, Jan. 30, 2018). In Canada, that primarily will be its terminals at Hardisty and Edmonton. Gibson earlier sold off its industrial propane business and is in negotiations on the sale of its U.S. environmental services business.
The natural market for heavy oil will continue to be the United States Midwest and Gulf Coast markets, according to Lindsay. “Hardisty is the natural access point to get to those markets because of the ingress pipelines coming in from the oilsands (the Athabasca pipeline and others) as well as the flexibility coming out of Hardisty to get to those markets with [TransCanada Corporation] Keystone XL, Enbridge [Inc.] lines and unit rail.”
Although Gibson sees some heavy oil at the Edmonton terminal, the facility has been, and will continue to be, a refined products hub and the company sees additional opportunities there as well, he said. “We are extremely excited about our ability and the opportunity we have to grow at Hardisty,” Lindsay told analysts. Over the last eight years, he noted, Gibson has built about nine million bbls of storage, including about eight million bbls at Hardisty. The weighted average remaining contract life is roughly 10 years.
“Producers hold six to eight days of storage in each of the terminals but with egress tight for the short term we definitely see them revisiting that and adding additional storage to the space,” he said. “Add to that the growth we see in oilsands and that translates to between five million and 10 million barrels of additional storage over the next 10 years.”
Assuming Gibson is able to attract 60 per cent of that growth, that would translate into at least one to two tanks per year at an oil price of between US$45/bbl and $65/bbl. With a sustained price outlook at or above $65, that could increase to two to three tanks per year and producer desire to maintain more days’ storage, according to Lindsay.
“We have been able to attract that growth to the Hardisty complex because of our connectivity and our focus on the customer and our ability to execute for those customers,” he said. “Gibson is the only operator in the Hardisty complex connected to every pipeline coming in and every major pipeline leaving the complex as well as the connection to unit rail and our customers really see value in that flexibility.”
Given the current tight market for egress out of the basin, the access Gibson offers to the only unit rail terminal at Hardisty through a joint venture is a “huge advantage,” Lindsay suggested.
The current capacity is 120,000 bbls/d (two unit trains per day) with expansion potential. Over the past six months, Gibson has seen the utilization rate increase to 50 per cent to 60 per cent and that’s growing. “That bodes very well as we move towards recontracting that space over the next couple of years,” he said.
Another strategic advantage for Gibson is its land position that Lindsay described as “second to none.” As the company is working on its three-tank, Top of the Hill project at Hardisty, it is extending its infrastructure to a new area of the facility and is now able to leverage that infrastructure for further growth.
Once Top of the Hill is complete in mid-2019, Gibson still has the capacity to build another five million bbls of storage-brownfield projects within the bounds of its current developed area depending on customers’ needs. In addition, Gibson has land positions south of the complex and at the unit rail site. “Although we don’t plan to develop those in the near term, they give us a line of sight to future growth for decades.”
Gibson also has an extremely strong position in Edmonton where it has 1.7 million bbls of storage but the focus is more on light oil and refined products, said Lindsay. “It’s really about connectivity,” he said. “We are connected to both CN and CP Rail lines and are near both major egress pipelines [Enbridge and Trans Mountain].”
The company has been developing its pipeline connections over the last few years and has connections in from the Access and Waupisoo pipelines and currently is completing a connection out to Trans Mountain, analysts heard.
Lindsay also said he’s proud of his company’s ability to execute and its ability to work with customers to understand their needs and develop the right projects based on those needs. A company, though, also needs to be able to execute those projects and Gibson has done a lot of work over the last few years to work on its ability to execute well, the conference heard.
Beyond that, though, Gibson needs to get the project through commissioning into start up so that it is able to operate effectively and efficiently and integrate that into the rest of its operations to benefit from the synergies of multiple customers within the complex, he said.
That focus on execution also has brought Gibson some opportunities in recent years. On recent projects it has been able to bring tank projects in early, ahead of the original plan and because of that has been able to monetize those tanks sooner, by bringing the customer in early and by taking advantage of short-term leases, said Lindsay.
At its Edmonton terminal, for example, the company originally was contracted to complete a two-tank project by the end of April of this year. “Working with our customer on some of their specific needs, we have been able to accelerate that in about four months and those tanks came into service Jan. 3 of this year,” he said.
While Gibson is selling some assets, it will retain and grow the businesses that leverage its core terminal business with ancillary terminal infrastructure offering a meaningful growth opportunity, said Steve Spaulding, president and chief executive officer.
Gibson, for example, will continue to add connections with additional flexibility, adding manifolds and pipeline connections under long term take-or-pay contracts with its customers at its terminals. While these typically are $5 million to $10 million opportunities, “they really add up and they provide high quality rates of return.”
Gibson’s exclusive rail link at Hardisty provides a strategic advantage to its customers and Gibson has the ability to expand that facility, he said.
In Edmonton, Gibson has four manifest rail facilities (two each CP Rail and CN Rail) and as refined products terminalling is a good part of its business, the company believes it can expand the tankage and throughput, building the infrastructure for its customers.
On the pipeline side, Gibson is discussing with shippers the possible extension of its 292-kilometre Provost gathering system into the Viking play, bringing its GSW (Gibson Sweet) product into its Hardisty terminal, said Spaulding. The Provost pipeline has a capacity of about 50,000 bbls/d. The 102-kilometre Bellshill gathering system which as a capacity of 30,000 bbls/d also brings light crude back to Hardisty.
The company also has a high degree of interest in the Duvernay which he described as a “phenomenal basin,” adding that Gibson will look at how it can deploy capital in the basin to help producers bring their products to market.
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