Energy company Gibson bucking oilpatch downturn

CALGARY Following the oil price crash and coronavirus reckoning on oil demand, Gibson Energy president and CEO Steve Spaulding said Tuesday his company wouldn’t start any new projects this year but with one notable exception — it could commission new oil storage tanks.

“We continue to be in discussions for additional tankage and supporting infrastructure,” Spaulding said on an earnings call, noting there has been massive demand for oil storage as crude prices have collapsed during the coronavirus pandemic, which has left producers dealing with higher than normal inventories.

Gibson revamped its business in the past few years by selling off its oilfield services and propane units to focus on oil storage.

Now, as 70 per cent of the company’s business is in terminals, the strategy has left the company less exposed to the oil price drop compared to the previous oil price crash of 2014.

Gibson is currently in the process of building new storage tanks at Hardisty, Alta., for customers to store an additional 1.5 million barrels of oil. Once built, Gibson will have 13 million barrels of oil storage capacity at the Hardisty storage hub and another 1.7 million barrels in Edmonton.

“We’ve had a lot of short-term interest in storage, however, we are 100 per cent leased,” Spaulding said, adding that the company’s storage tanks are leased out to longer-term operators rather than short-term traders trying to store oil now to make money in the futures market.

Competitor Enbridge Inc., meanwhile, is repurposing an idle pipeline that was previously part of its Mainline pipeline network in Saskatchewan to store oil, given the huge demand for storage space.

“We have examined our entire system and identified an opportunity to use a portion of the legacy Line 3 pipeline in Canada, between

Regina and Cromer (in Manitoba), as temporary, regulated storage before the pipeline is decommissioned next year as part of our regulatory approval for the Line 3 replacement project,” Enbridge spokesperson Tracie Kenyon said in an emailed statement Monday.

The move would make 900,000 barrels of additional oil storage space available to companies, and Enbridge is looking to develop additional options to store crude.

“This temporary storage, along with further maintenance options to our storage tank program will create more than two million barrels of additional storage capacity for 2020,” Kenyon said.

Oil prices surged Tuesday, with the West Texas Intermediate benchmark rising almost 20 per cent, in midday trading to reach US$24.41 per barrel.

The price of Western Canadian Select similarly improved 17 per cent, or US$2.79 per barrel, to US$19.16 per barrel.

The rally in both WTI and WCS prices mark a major improvement over the single-digit, and even negative pricing, seen in April but are still well below profitable levels for the oilpatch. As prices remain muted, companies across North America have been cutting oil production.

Oil producers in Alberta have announced shut-ins totalling approximately 705,000 barrels per day so far, or 910,000 bpd when diluent volumes used to blend oilsands production are counted, analysts at Eight Capital said in a Tuesday research note.

“Voluntary shut-ins throughout the basin look to be keeping inventories from reaching tank tops as crude-by-rail volumes are quickly ramped down and spare capacity become available on export pipelines,” the analysts wrote, adding that oil storage was at about 80 per cent of capacity in the province.

For Gibson, the huge demand for storage, and the actions by Enbridge to free up additional space, does not change its approach and it’s not looking to offer storage to traders playing the futures market.

“Our storage is not in that commodity-based market,” Spaulding said. “We don’t have any storage to lease out. We can’t benefit additionally from this opportunity other than extending contracts or building more tankage down the road.”

Gibson recorded net income of $50 million in the first quarter, a 19-per-cent decrease from the $62 million earned the same quarter a year earlier, company executives said Tuesday.

“We do not question (the company’s infrastructure division) beat, but the magnitude is a bit of a surprise,” BMO Capital Markets analyst Ben Pham said in a note following the company’s earnings release.

Gibson’s shares traded up about six per cent at the close Tuesday to reach $20.39 in Toronto.

We continue to be in discussions for additional tankage and supporting infrastructure.