Gibson transitioning to focused oil infrastructure growth
January 30, 2018
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Gibson Energy Inc. announced its corporate strategy to accelerate its transition to a focused oil infrastructure growth company, divesting several non-core businesses and targeting competitive distributable cash per share and dividend growth.
“Accelerating the shift towards an oil infrastructure focus meaningfully improves the quality of our cash flows and better positions Gibson to target double-digit distributable cash flow per share growth,” said Steve Spaulding, President and Chief Executive Officer. “We believe we have high visibility to reaching these targets through 2019 based on projects already under construction and anticipated cost savings, with disposition proceeds expected to fully fund related growth capital.”
The key attributes of the go-forward strategy are:
• Oil Infrastructure Focus: infrastructure to comprise approximately 85 per cent of segment profit by the end of 2019, with the Hardisty and Edmonton terminals representing approximately 75 per cent of segment profit;
• Targeting 10% Distributable Cash Flow Per Share Growth: aim to invest $150 million to $200 million in growth capital per year, inclusive of the expected sanction of at least one to two tanks per year that provides mid- to upper-single digit distributable cash flow per share growth; and
• Secure, Growing Dividend: underpinned by long-term contracts with Investment Grade counterparties at its terminal assets, with total company cash flows comprised of approximately 85 per cent take-or-pay or stable fee-based structures by the end of 2019.
“Longer term, to secure the capital investment opportunities we require to drive our growth,” said Spaulding, “we need to be focused on the business lines and basins in which we have the strongest competitive positions.”
Gibson’s terminals position forms the core of its Canadian business strategy, and the company expects that the long-term growth of oil sands production will continue to increase heavy oil flows into Hardisty, driving producer demand for additional tankage.
According to the company press release, Gibson expects to continue to secure a significant proportion of incremental third-party tank build opportunities at Hardisty. These factors are expected to support the sanction of at least one to two tanks per year on run-rate basis in an approximately US$45 to US$65 per barrel oil price environment, with potential upside if oil prices continue to strengthen or if producer demand for days of storage increases.
The company will also continue to grow its businesses that leverage the core terminal position. Ancillary services within the terminals are expected to continue to generate smaller-scale investment opportunities, including additional pipeline connections, blending and other optimizations on behalf of terminal customers. An expansion of its pipeline gathering network surrounding Hardisty in the Viking Basin is anticipated, by leveraging existing storage capabilities and access to egress pipelines at its terminals.
At its Moose Jaw Facility, the company believes there are “opportunities to realize further operating and maintenance capital cost efficiencies.” There will also be an evaluation of potential high-return capital projects, including increasing throughput at the facility at an attractive relative cost. Consistent with its infrastructure focus, the Gibson has initiated a process to reduce cash flow variability by securing take-or-pay tolling structures on a portion of output capacity and will re-evaluate the role of the Moose Jaw Facility in the future.
In the U.S., Gibson will focus on the Permian and SCOOP/STACK basins and leverage its injection station position in these plays as a competitive advantage to build gathering systems relative to other regional players. Over the next 12 to 24 months, the company will seek to restore its U.S. business profitability to prior levels of $10 million to $15 million on a run-rate basis by establishing the producer relationships required to drive incremental volumes to the injection stations and existing gathering systems.
The longer-term objective in the U.S. will be to translate trucked volumes and producer relationships into infrastructure capital investment opportunities, including the development of regional gathering pipelines, in order to establish an additional growth platform that provides an incremental $25 million to $50 million of capital investment opportunities each year.
As part of Gibson’s divestiture of non-core business lines, the company has continued to advance the sale of its U.S. Environmental Services business, and expects to complete that by the end of the first half of this year.
(Gibson Energy Inc.)