Gibson Energy banks on Canadian oil patch growth

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Among the farms in eastern Alberta prairie, the newly named CEO of Gibson Energy Inc. is quietly signalling that the future of Canada's oil patch is brighter than its recent past.

Gibson is one of Canada's largest energy infrastructure companies, with a $2.3-billion market capitalization and a portfolio that includes oil storage facilities in Hardisty, a town surrounded by wheat fields roughly halfway between Edmonton and the Saskatchewan border. These tanks help move oil from many of Alberta's major producers into rail cars and a web of pipelines.

Plans to expand Gibson's Hardisty operations with massive new storage tanks, a $150-million-plus project, have been kicked around by the Calgary-based company through the downturn in oil prices that began in 2014. Altacorp Capital analyst Dirk Lever has consistently highlighted building out Hardisty as a key "catalyst" to increasing cash flow and dividends at Gibson.

Projects such as Hardisty are also a measure of oil patch sentiment: Many companies responded to falling commodity prices and the election of an NDP government in Alberta by cutting spending. Significant investments in new facilities signal corporate executives see better times coming.

In June, Gibson recruited chief executive officer Steve Spaulding from a Dallas-based energy infrastructure company, replacing 26-year company veteran Stewart Hanlon, who announced retirement plans early this year. In his first week on the job, Mr. Spaulding invested $1-million of his own savings in Gibson stock.

Mr. Spaulding said in a recent interview that Gibson has begun expanding Hardisty by obtaining the necessary permits and starting work on the site, although big-ticket elements of the project such as construction will only commence when oil producers make commitments to the new facility.

"We are optimistic that over the long term, producers will need additional storage capacity and transportation services, and we want to be positioned to supply that infrastructure," said Mr. Spaulding, who launched what became a large natural gas storage and refining business in Texas for his previous employer, Lone Star NGL LLC.

While Gibson's new CEO said it was too early in his tenure to highlight other potential growth sectors for the company, Mr. Spaulding said part of his mandate is to focus on building lines of businesses that are backed by multiyear contracts with clients, while limiting Gibson's financial exposure to moves in oil and gas prices.

Gibson is adding significant capacity to its operations in eastern Alberta after announcing plans last September to double the size of its Edmonton storage facility, the company's other major oil tank farm in the province.

The Hardisty and Edmonton investments are driven in part by expectations that production from Alberta oil sands will increase over time after domestic oil companies such as Canadian Natural Resources Ltd. and Cenovus Energy Inc. took control of major projects in the region from foreign energy companies.

"On balance, we see domestic companies controlling oil sands projects as positive for development, and for demand for infrastructure," said Gibson chief financial officer Sean Brown. He said the Calgary-based companies look to oil sands projects for the bulk of their reserves, and development of these properties is a priority, while global energy companies view the northern Alberta properties as one of many regions where they operate, and can be quick to turn off the tap on spending.

Gibson is building out its energy storage business, which generate predictable cash from multiyear contracts with producers, and exiting businesses with profits that can rise and fall with the commodity cycle.

The company was founded in 1953 and was owned by private-equity funds for much of its history; these owners focused on building a portfolio of oil and gas businesses with little in common. Gibson went public in 2011 and management spent the past six years focusing operations on a smaller number of businesses, a process Mr. Spaulding said will continue on his watch.

Mr. Spaulding, who started his career with global energy companies Chevron and Texaco and then built energy infrastructure businesses at two Texas-based companies, takes over Gibson at a time when the company is flush with cash in the wake of the $412-million sale of its propane business in April to Superior Plus LP.

The sale to Superior is subject to an ongoing review from federal competition regulators – the buyer is Canada's largest propane company. But there was fierce competition for the division from energy companies and private-equity funds, and Gibson was able to use this tension to structure a transaction that saw Superior pay for the propane business and shoulder all regulator risk.

Gibson is now putting cash from the sale of the propane business to work on expansion of its Hardisty and Edmonton oil storage facilities, on expectations that Canada's largest energy companies will ramp up oil production.