Brian Zinchuk is editor and owner of Pipeline Online
Gibson’s South Texas Gateway Terminal is so new, it’s got the new car, er, tank smell. That larger tanker is 330 metres long, according to Google Earth. These tankers are also a lot larger than the tankers that will be loaded in Burnaby, British Columbia, once the Trans Mountain Pipeline Expansion is complete. Google Earth
CALGARY – A few years ago, if you were listening to a Gibson Energy Inc. earnings call and heard them talk about tankers, it’s a good bet those were trucks hauling heavy oil around Lloydminster.
The trucks are long gone. On Oct. 31, the tankers Gibson executives were talking about were bigger. A lot bigger. Supertanker bigger.
Several years ago, Gibson pivoted away from trucks, focusing on its terminal business and its expansion. Well, that terminal business got a lot bigger recently.
On Aug. 1, Gibson closed its US$1.1 billion acquisition of the nearly brand-new South Texas Gateway Terminal at the mouth of Corpus Christi Bay. That’s at the south end of the Texas Gulf Coast, 200 kilometres from the state’s southern tip. It’s also, according Gibson, one of two places on the Texas Gulf Coast where you directly load very large crude carriers (VLCCs), also known as supertankers.
It’s a remarkable turn of events in the past decade, as the U.S. went from importing large amounts of oil to becoming and exporter, fueled by the phenomenal growth of Texas oil production. That growth occurred because of the shale revolution, particularly in the Permian Basin, but also the Eagle Ford shale which is right next to this particular export terminal.
On top of that, a Canadian company is now in the thick of, owning and operating a major export terminal, shipping American oil.
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The company’s website says, “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.”
It is capable of loading two VLCCs at the same time. It’s also located a short distance away from the mammoth Kieweit Offshore Services shipyard, which has built some of the largest offshore facilities made. In March, the terminal moved over 670,000 barrels per day. Put in perspective, that’s equivalent to every single barrel of oil produced in Saskatchewan in a day, then adding another 50 per cent.
“The third quarter of 2023 was a transformative quarter for a company marked by the successful closing of the gateway terminal on August 1,” said Steve Spaulding, president and chief executive officer, in an earnings call on Oct. 31. “As you may recall, prior to this acquisition, we had consistently communicated that any M&A opportunity would need to be on strategy and deliver high quality cash flow to take or pay contracts with high credit quality customers. This transaction met all of these objectives, objectives, and provides us an additional core platform that is competitively advantaged.
“I’m also pleased to report that over the two months since closing the Gateway acquisition, the asset has exceeded our expectations with respect to both the financial and operational performance during the month of August, the terminal loaded 12 very large crude oil carriers or VLCC. As a record for the facility, this is something that sets us apart from other terminals in Corpus Christi, since we are one of only two facilities in the Texas Gulf Coast, but the ability to load VLCCs, this high watermark also speaks to the continued demand for the terminal service and our facility located an advantage outer harbor of Ingleside.”
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Right now those supertankers can only be loaded up to a certain point, as the harbour depth limits filling ships to capacity. Lighters (smaller relay tankers) are used to top off the tankers offshore before departure, transferring the oil ship-to-ship whiled tied up alongside at anchor, in the open ocean.
Spaulding noted that the Coast Guard has limited loading, even for deeper ports like theirs. But recent deepening and widening of the channel is expected to allow more barrels to be loaded onboard at the pier. If that happens, Gibson would possibly deepen their docks, allowing VLCCs to increase their load form 1.25 million barrels to 1.45 million barrels. The company has asked their customers if they’re interested.
Spaulding noted their competitive advantage over Corpus Christi’s inner harbour has customer choosing to pay out take-or-pay contracts to forego use of the inner harbour, just so they can use the Gibson terminal.
Wind power for oil terminal business
Spaulding said, “Looking forward we are confident around the outlook for our expanded liquids infrastructure asset base, and will continue to focus on growing long-term, high-quality cashflows. In addition to our impressive financial and operational results, we entered into a renewable energy power purchase agreement, with Capstone Infrastructure Corporation and Sawridge First Nation, which demonstrates Gibson’s commitment to the low-carbon transition and reaching Net Zero by 2050.”
That involves 15 year power purchase agreements with the Buffalo Atlee 2 and 4 wind farms, located near Jenner, Alberta. The company noted in a Sept. 14 press release, “With a combined nameplate capacity of 26 megawatts, the projects are expected to meet over 50% of Gibson’s annual electricity needs offsetting approximately 300,000 tonnes of carbon emissions over the term of the agreement. This is a critical step towards achieving Gibson’s 2025 target to reduce Scope 2 emissions by 50 per cent and 2030 target to completely eliminate its Scope 2 footprint.
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“The Buffalo Atlee projects are being built and operated by Capstone in partnership with the Sawridge First Nation, who have an equity interest in the projects.”
Construction for both projects is underway, as of mid-September.
Moose Jaw refinery
The company noted that wider Western Canadian Select/West Texas Intermediate oil price differentials benefit the company’s Moose Jaw refinery, which uses heavy oil to make asphalt. During the winter months, the asphalt is stored.
Apportionment of up to 24 per cent on the Enbridge Mainline is expected to continue in the near term, which Gibson officials said creates some opportunities for storage and transportation movements.
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Financial Highlights
The company reported revenue of $3,226 million in the third quarter, a $574 million or 22 per cent increase relative to the third quarter of 2022, primarily due to increased revenues within the Marketing segment driven by higher volumes, partially offset by lower commodity prices.
Other highlights include:
- Infrastructure Adjusted EBITDA(1) of $140 million in the third quarter, a $29 million or 26% increase relative to the third quarter of 2022, primarily driven by the two-month contribution from the newly acquired Gateway Terminal as well as strong performance from the legacy Infrastructure business
- Marketing Adjusted EBITDA(1) of $24 million in the third quarter, a $24 million or 50% decrease from the third quarter of 2022, primarily due to lower refined product margins
- Adjusted EBITDA on a consolidated basis of $150 million in the third quarter, flat relative to the third quarter of 2022, as result of the factors described above as well as somewhat higher general and administrative expenses
- Net Income of $21 million in the third quarter, a $51 million or 71% decrease over the third quarter of 2022, primarily due to the acquisition and integration costs and higher finance costs incurred during the current period as a result of the Gateway Terminal acquisition and related financing activities, partially offset by lower income tax expense and lower depreciation expense in the current period
- Distributable Cash Flow of $93 million in the third quarter, a $22 million or 19% decrease from the third quarter of 2022, a result of the factors described above
- Dividend Payout ratio on a trailing twelve-month basis of 61%, below the Company’s 70% – 80% target range
- Net Debt to Adjusted EBITDA ratio at September 30, 2023 of 4.0x, above the top end of the Company’s 3.0x – 3.5x target range due to Adjusted EBITDA including only two months of contribution from the Gateway Terminal; we expect the Net Debt to Adjusted EBITDA ratio to be temporarily elevated until twelve-months of adjusted EBITDA from the Gateway Terminal is reflected in the Company’s Net Debt to Adjusted EBITDA ratio
Strategic Developments and Highlights:
- Successfully closed the acquisition of 100% of the membership interests of South Texas Gateway Terminal LLC for U.S.$1.1 billion, through which Gibson acquired the Gateway Terminal; this purpose-built high-quality crude oil export facility complements and diversifies the company’s existing high quality liquids infrastructure asset base
- Closed the previously announced offering of $900 million of unsecured medium term notes as well as the offering of $200 million of 8.70% fixed-to-fixed rate subordinated notes
- The company released its 2022 sustainability update report and announced it had entered into a 15-year renewable energy power purchase agreement, with Capstone Infrastructure Corporation and Sawridge First Nation, which is expected to meet over 50% of Gibson’s annual electricity needs over the period
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