Gibson Energy has announced a new expansion to oil storage capacity at its Hardisty, Alta. terminal.
This year Gibsons marks 50 years operating at Hardisty, where it built the market hub's first tank farm, according to the company.
The new project will increase the total capacity of the terminal to 10 million barrels. It is estimated to carry a capital cost of $120 million, according to analysts with GMP FirstEnergy.
Two 300,000 barrel tanks and one 500,000 barrel tank are expected to be placed in service in the third quarter of 2019, .
The two 300,000 barrel tanks are underpinned by a long-term, fixed fee contract with a senior, investment grade, oilsands customer, Gibsons says.
The 500,000 barrel tank will service operational needs, replacing the tank that was earmarked for that purpose in the last expansion phase which was ultimately contracted to a customer under a long-term contract.
“Our Hardisty Terminal continues to demonstrate its commercial competitiveness and this contract affirms the on-going demand for our strategic storage infrastructure in support of incremental oilsands brownfield development,” Gibsons CEO Steve Spaulding said in a statement.
“We will continue to focus on the build-out of the undeveloped acreage at both our Hardisty and Edmonton terminals, and the growth of the proportion of our cash flow streams attributable to the Infrastructure segment, as our number one strategic priority.”
GMP FirstEnergy says the project may be smaller than expected, but it will provide more stability to Gibson’s business model.
“Previously, we had been anticipating that Gibson could add 0.8 million to 2.0 million barrels of storage at Hardisty in 2019 depending on customer demand. With only 0.6 million barrels of tankage being additive to our estimates, we believe this announcement may be slightly below market expectations,” analysts wrote in a research note published on Tuesday.
“The 0.5 million barrels of operational tankage being added is effectively being used when other tanks are being cleaned, undergoing maintenance, et cetera. As such, one could view the spending as maintenance capital, with no commensurate EBITDA impact and no contractual commitments. There remains a possibility that this 0.5 million barrel tank could be contracted at some point, but another operational tank would be required. The site at Hardisty can easily fit another tank if this occurs.
“Gibson will be able to selectively earn revenue from the 0.5 million barrel tank when maintenance is not ongoing at Hardisty, but we expect this will be intermittent and challenging to model. As well, the additional tank will provide more stability to the infrastructure segment as Gibson is prevented from billing customers during times of maintenance.”