Good morning, ladies and gentlemen. Welcome to Gibson Energy's 2019 first quarter conference call. Please be advised this call is being recorded. I would now like to turn the meeting over to Mark Chyc-Cies, Vice President of Strategy, Planning, and Investor Relations. Mr. Chyc-Cies, please go ahead.
Thank you, operator. Good morning, and thank you for joining us on this conference call discussing our first quarter 2019 operational and financial results. On the call this morning from Gibson Energy are Steve Spaulding, President and Chief Executive Officer, and Sean Brown, Chief Financial Officer. Listeners are reminded that today's call refers to non-GAAP measures and forward-looking information. Descriptions and qualifications of such measures and information are set out in our continuous disclosure documents available on SEDAR. I'd like to turn the call over to Steve.
Thanks, Mark. Good morning, everyone, and thank you for joining us today. This is another strong, consistent quarter for Gibson Energy. With adjusted EBITDA from combined operations of CAD 124 million, adjusted EBITDA from continuing operations, CAD 118 million, and distributable cash flow from combined operations of CAD 83 million. We've been able to continue to strengthen our already strong balance sheet and fund our dividend and infrastructure projects. Infrastructure had another steady quarter and continues to grow. The increase was driven from placing 1 million barrels of Hardisty tankage and the Viking Pipeline into service. Marketing was very strong and in line with the outlook we provided on last quarter's conference call. We were very happy when there's an opportunity to realize outside earnings from marketing. We use it to pay down debt and fund growth capital. In terms of growth, we continue to execute our capital projects.
Both the first tanks in the Hardisty top-of-the-hill build-out and the Viking Pipeline were placed in service ahead of schedule and on budget. Our customers were able to benefit from the early use, and we started earning early. With tankage, we realize the revenue as soon as it's placed in service, as it's mostly from the lease fee. With pipeline, there can be a ramp-up period. Throughput on the Viking Pipeline has grown steadily since we placed it in service in December. It is now operating near its current capacity and consistent with our expectations. We have several low-cost options to expand the capacity as needed. The expansion of the Hardisty rail facility also went into service in the first quarter, increasing the capacity from two to three unit trains a day, or about 180,000 barrels per day.
This is fully contracted through our partner on a take or pay basis. All our capital projects under construction are proceeding very well. They are on budget, and most are ahead of schedule. At this rate, we have a new project entering service each quarter across the next four quarters. We are currently performing a turnaround at Moose Jaw, and hot work connections for the expansion project are being completed during the turnaround, allowing us to place the expansion in service without a shutdown. We expect the expansion will enter service at the end of the second quarter. Late in the third quarter, we'll be ready to start up Pyote East, including the connection into Wink. We've ordered the pipe and plan to start construction by the end of June. At Hardisty, there's 2.5 million barrels of additional tankage under different phases of construction.
We expect to place four tanks or two million barrels of tankage into service across the fourth quarter of this year and the first quarter of next. If we have a good summer of construction, we could place the tanks in service a couple of months early. It's a bit early to say at this point, as winter continues hanging on here in Alberta. As winter breaks, we will begin construction on the foundation of the storage tank we announced earlier this year. We are targeting fourth quarter 2020 in-service date for this tank. Ideally, we will build the foundations for the last two tanks at the top of the hill this summer. This will reduce cost as we leverage our ongoing work. We're also executing on the commercial side. As discussed, we sanctioned one tank so far this year.
As you heard us say at the Investor Day last month, we are very confident we will sanction one to two million barrels of tankage per year over the next several years. Our confidence for this year and next is based on current commercial discussions. The U.S. team is currently pursuing several exciting opportunities, both on the gathering front, around our Pyote Gathering platform, and on contracting tankage at Wink. We will remain measured in our approach, but are optimistic we will sanction projects through the balance of the year. As we talked about at Investor Day, a major accomplishment was the completion of our divestitures. We have sold all our non-core businesses, leaving us with a very focused infrastructure asset base, and we achieved our targets on proceeds and timing. With our existing platform of businesses, Gibson Energy is in great position today.
The projects we have under construction will drive 10% plus distributable cash flow per share growth through 2020. Our balance sheet is very strong, with leverage and payout well below our target ranges. We are very pleased to see the strength recognized by DBRS through our first investment-grade rating. In summary, the results in the first quarter of 2019 were very strong for both our operational and financial perspectives. We will continue to execute. We are very focused on the delivery of our capital projects, and we expect the commercial teams north and south of the border will keep securing new projects to keep our engineering team busy. Our financial position is very strong. Leverage and payout both remain well below target ranges. We will remain fully funded. The objective for the next couple of quarters is very clear.
We need to keep executing on our strategy, keep doing what we said we would do. I will now pass it over to Sean, who will walk us through our financial results in more detail. Sean?
Thanks, Steve. As Steve mentioned, we had a strong first quarter. Results were very much in line with our internal expectations, our outlook remains consistent with what we outlined at Investor Day at the start of last month. I will say that we are very glad to have the dispositions completed, and we expect to close Canadian truck transportation in the next couple of months. It also makes our business much simpler to talk about on our earnings calls with only two segments, one of which is very consistent quarter-over-quarter. In terms of the financial results, adjusted EBITDA from combined operations of CAD 124 million in the quarter was a CAD 22 million increase from the first quarter of 2018. On a more comparable basis, adjusted EBITDA from continuing operations of CAD 118 million in the quarter was a CAD 32 million increase from the first quarter of 2018.
Distributable cash flow increased CAD 26 million over the first quarter of 2018. Digging into the main drivers of the increases over the first quarter of last year, infrastructure segment profit was up CAD 6 million, with projects coming into service, as Steve indicated, and a CAD 34 million increase in contribution from marketing. On an adjusted EBITDA basis, this was partly offset by the CAD 7 million in foreign exchange losses and unrealized gains on financial instruments, largely attributable to activities within the marketing segment. On a sequential basis, marketing segment profit in the first quarter was a CAD 16 million decrease from the fourth quarter of 2018. Contribution from infrastructure was up CAD 3 million, which was reflective of each of the new projects we placed into service only providing revenues for part of the quarter, meaning we will see the full increase in the second quarter.
We also had a small gain on the sale of ES North, which closed in February. However, most of the variance to the fourth quarter is explained by the CAD 20 million decrease in marketing, as differentials peaked in the fourth quarter of last year. While some may have thought that our outlook for marketing on the last call was a bit conservative, the CAD 61 million that marketing earned was fairly close to the outlook. Where the WCS to WTI differential in the fourth quarter was nearly $40 U.S. per barrel, it decreased to $12 U.S. in the first quarter with the curtailment. As a result, most of the segment profit from marketing in the quarter was realized in January from positions put in place during the December cycle for one-month forward delivery.
With the differential for the second quarter looking like it'll average about $10 U.S., as well as the turnaround at Moose Jaw during the quarter, our current outlook is that marketing will be towards the bottom end of the CAD 15 million-CAD 20 million per quarter mid-cycle run rate we have previously discussed. As a result, the second quarter should be the weakest of 2019 for marketing. That said, differentials are trading wider for the second half of 2019, likely needing to approach $20 U.S. in order to support incremental crude by rail, and we will also have to see the impact of the new Alberta government. To the extent we do see differentials push out towards $20 U.S., that would be upside, likely pushing marketing above CAD 20 million per quarter.
Distributable cash flow from combined operations, the first quarter result of CAD 83 million was effectively in line with the fourth quarter, and as mentioned before, a CAD 26 million increase over the first quarter of 2018. In terms of notable items, G&A in the first quarter was a bit higher than our 2018 run rate as we incurred severance costs related to the departure of one of our senior executives. Also, as part of our 2019 budget, we reviewed the allocations to the businesses. While these costs are flat or lower than 2018 on an absolute basis, the allocation change between corporate expenses and business unit segment profit results in a CAD 1 million-CAD 1.5 million increase in quarterly run rate G&A.
With the strong result, distributable cash flow from combined operations for the trailing 12 months increased to CAD 309 million, pushing the payout ratio down to 62% and further below our 70%-80% target range. Similarly, debt to adjusted EBITDA 2.3 times remains well below our 3-3.5 times target. If, as we show in our Investor Day materials, marketing moves to mid-cycle levels for the balance of 2019 and as we continue to fund our capital program, we would expect our leverage and payout to be around the bottom end of our target ranges at the end of the year. To the extent marketing is above our mid-cycle range, we should remain below our target ranges.
As I mentioned in my prepared remarks at Investor Day, through the divestiture of non-core businesses. The continued improvement of our balance sheet and the strong, consistent performance of the business all contributed to our first investment-grade credit rating, which we received from DBRS last month. This has already helped decrease costs in our credit facility and could further decrease borrowing costs if we're able to secure a second investment-grade credit rating. In summary, the first quarter was very much in line with our expectations with both infrastructure and marketing rate where we thought they would be. Importantly, we remain fully funded for all our sanctioned capital. Our payout and leverage are well below target levels, and the strength of the business will continue to build as we place additional infrastructure into service over the coming quarters.
We are very pleased with how things are going and will look to sustain the momentum during the rest of the year. At this point, I will turn the call over to the operator to open it up for questions.
Ladies and gentlemen, if you have a question or a comment at this time, please press the star then the one key on your Touch-Tone telephone. If your question has been answered, or you wish to remove yourself from the queue, please press the pound key. Our first question comes from Jeremy Tonet with J.P. Morgan.
Hi, good morning. Just wanted to touch base on the Permian a bit more, and follow up with what you talked about at the investor day as far as really getting some gathering systems, getting the work up behind that to secure that to backstop the potential for storage at Wink. Just wondering if you could provide a bit more detail there and how you see those conversations progressing with your customers and any change in your thoughts since the analyst day realized that's just a short while back at this point.
I think I'll just expand. We've ordered the pipe. The right of way is well along. We expect to place it in service late third quarter. It looks like it's going to come in as expected or really near expected case on volumes. Really what we're chasing out there, Jeremy, would be those bunts and singles. Those type of volumes that we're chasing would come on in two to five to 10,000 barrels a day, but not very much more. Not a large amount of incremental capital on top of that. Kind of just bunts and singles with high rates of returns.
Great. With the bunts and singles, is this kind of referring to potential other gathering systems beyond Pyote, just to be clear, or kind of extensions of Pyote there?
Just extensions out from Pyote, Jeremy.
That's helpful. Thanks. Viking, I think you touched on, there was a bit of a ramp there was also some kind of noise in the segment with regards to the ESN sale as well. Just wondering how we should think about run rate for volumes in the pipeline segment, given those gives and takes there and where you see that progressing over the year.
Thanks, Jeremy. Sean here. In our prepared remarks, we talked about that the Viking Pipeline is ramping up as we speak. I think they're around 75% right now. We'd expect that to continue to ramp up as we move through the second quarter. I'd have to get back to you on a specific volume number, but that's sort of the quantum that we've been talking about.
That's helpful. I'll stop there. Thanks for taking my question.
Our next question comes from Robert Hope with Scotiabank.
Morning, everyone. If I understand correctly, volumes are at 75%. When will you start looking at kind of adding some additional horsepower there as an expansion of that asset or other gathering lines in the area?
I would think it's probably going to be more in the third or fourth quarter, Rob, before we do something. Many of those smaller producers, they've reached their limit at that 10,000 barrels a day limit, that's kind of slowed down their drilling. Of course, a lot of them got hurt in the fourth quarter of last year as far as cash flow. We expect it to ramp back up and be running near capacity in that third or fourth quarter. We can put some drag-reducing agent in there, then we can put a small pump station to really probably come close to adding an additional 50% capacity pretty easy.
All right. That's helpful. Just more of a bit of a granular question. Just on the Q2 outlook for marketing. If it's at the lower end of the mid-cycle economics, yet you have an outage at Moose Jaw as well as really tight diffs. I'm just wondering, what would put you below that range in terms of a negative outcome?
It's not really a scenario that we expect to see, Rob, to be candid. For that to occur, we'd have to see differentials well below CAD 10 for the entire quarter, and it'd probably be like Q2, where you'd have Moose Jaw out for at least a month of it. As we talked about on the call, even with Moose Jaw out for a month, and differentials being below what we would think as being the sort of mid-cycle levels, which if you remember, is more in the sort of CAD 12-ish range, we still expect to be at that sort of lower end of the CAD 15 to CAD 20. Struggle to really see where we would go materially below that in really any scenario when you take that into context.
All right. That's helpful. Thank you.
Our next question comes from Patrick Kenny with National Bank Financial.
Yeah. Hey, guys. Just on the Wink hub here and thinking about your discussions that you may be having with some of the larger pipeline operators here to sign agreements to connect the 160 acres into those pipelines. Just wondering if you have an update on timing, when we might hear something on those connections.
I believe we've signed two connection agreements. We've got right away that goes up into Wink and connecting into those facilities. Just like I said, I think we'll place those in service late third quarter. Some of those pipes are going to come in the late third quarter, too, those export pipes. We'll be able to flow even if the export pipes aren't up, because we're connecting to some of the infrastructure there that has capacity.
Okay. That's great. Sean, appreciate the near-term outlook here on the marketing with diffs where they are. Just back to your comment around the strip pricing showing CAD 20 a barrel kind of late 2019 into 2020. Just wondering if you're starting to layer on any hedges to sort of protect the upside, the high end of your guidance range there of the CAD 60 million-CAD 80 million.
We have layered on some hedging, because of the third and fourth quarter and the stronger pricing. I can't say that we've hedged a tremendous amount. Not as much as we hedged last year.
Is there a target percentage that you want to be hedged as you enter the second half of the year, if strip pricing remains where it is?
We don't have a target right now. We like that CAD 20 to CAD 21. Probably if it got above CAD 21, we would start to think more serious about hedging a larger volume. I think we placed a lot of our hedges last year around CAD 25 to CAD 26. We lost a lot of money on those hedges, but we benefited on the actual physical flow.
Yeah, we don't have a specific target. I think what we try and do is remain rather fluid in around what we're seeing in the market and what we expect in the market as we move through the year. Not a specific target, but we'll continue to look for opportunities if we can to lock in, like Steve said.
Okay. Sounds good. Then just lastly, Sean, any update on your discussions with S&P or the timing where you might be under review for an upgrade?
No real update from Investor Day. As you might imagine, I am in active dialogue with all of our rating agencies, including S&P. They normally do their annual review in August. Of course, we'd like them to take a look at the company sooner than that, just given the dramatic transformation we've seen. Not just in sort of business profile, but really cash flow quality and credit quality, quite frankly. We are in active dialogue. Again, really what they do is out of our control. We can just try and work constructively with them. I'm still quite hopeful. No real update from Investor Day at this time.
Okay. That's great. Thanks, guys.
Our next question comes from Linda Ezergailis with TD Securities.
Thank you. I see in your refined products you gained some market share. I'm wondering if it's reasonable to assume that continues or potentially trends even higher. Can you talk about some of the competitive dynamics in some of your refined products?
Again, with gaining market share, I would say, in Canada, the market has been weaker this year for our drilling fluids, just because of the down cycle in drilling in Canada. Where we've gained market share was probably in the Permian Basin, where we've moved a lot of drilling fluid.
Hello?
Yeah, I think there's really not much more to add to that, Linda, unless you had further you wanted us to elaborate on.
No. I guess we can just assume that it's a steady state going forward is reasonable.
Well, what happens is during the first quarter, what we do is we build considerable inventory in our refined products, such as our roofing blocks and our asphalt. We store that and then sell it, and then we start to move it out late in the second quarter and into the third, Linda.
Okay. None of the working capital build was related to line fill or anything else going on in other parts of your business then?
Some was. It was really kind of a joint between line fill and really the refined products that we had in storage really down in the U.S. We took out storage this year, which is a little bit different than we've done in the past, and filled that storage for our roofing blocks and our heavy asphalt.
Okay. Thank you. Can you give us, is there any update or change in your cash tax outlook for this year and beyond? We saw a little bit lower than expected, I guess, current income taxes, but you had a high actual paid cash tax. I'm just wondering if you can walk us through the cadence of how it might unfold for the rest of the year and beyond.
Yep. Happy to. I'll maybe touch on the high cash tax paid this quarter, if you recall. Just the way installments work for taxes, we actually guided people to using current tax last year because, the way we had budgeted previously didn't have that marketing outperformance. Marketing outperformance, that's largely taxable. Didn't have to pay taxes last year. Actually had about a CAD 14 million refund, but then had a large installment that was due for last year's performance in Q1. That's the high cash tax payable. We really tried to get in front of that last year and guide people, and they think we had DCF to use current tax because of it. We did have some offsets in the first quarter here where cash taxes were somewhat less than what we would have otherwise guided or current taxes.
As we move forward through the rest of the year, our guidance would remain consistent with what we have previously indicated to people, which is basically, assume the U.S. is not taxable. In Canada, assume that our cash taxes or current taxes will be primarily off of our marketing business. 27% times whatever your forecast for marketing, and that's where we'd guide you from a tax perspective throughout the rest of the year.
That's helpful. Thank you.
Thank you.
Our next question comes from Robert Catellier with CIBC Capital Markets.
Hi, good morning. What are the opportunities or implications for Gibson if producers take up the railcar commitments that the previous government made, but the current provincial government wants to cancel?
Robert, I don't see it as any real change. Our contracts in place would remain in place, and any contracts USD Group might have would remain consistent.
Okay. You don't see any disruption where maybe the cost of rail plummets a bit, and then there's sort of half cycle thinking on rail costs?
That wouldn't affect our business. We're not big into railing ourselves.
Yeah, I was thinking more on the follow-through impact on differentials. You got cheaper rail, maybe differential tightens, right?
Yeah, maybe that pushes you down to the CAD 18 versus the CAD 20-CAD 21.
Right. It's only a marginal-
Yeah
impact, if any.
Yep.
Okay. Just, Steve, now that you have an investment-grade rating, does it make sense to refinance any of the notes that are outstanding early, or do you just wait for maturities or for developments at the other rating agencies?
Robert, I'm going to let John answer that one. Maybe I'll take that one, Robert.
Yeah. Sorry, Sean.
No. Absolutely. Really, we only have one investment-grade rating. The catalyst for those sort of decisions will be the second investment-grade credit rating. You hit it dead on the nose. To the extent that we do get that second investment-grade credit rating, as I understand it or am being guided to, there's material interest savings for a new term debt issuance. Call it, if you're thinking about our 5.25% senior unsecured notes, probably 175 basis points or something in that range, depending on the term. If you look at the call premiums on our existing bonds, the math is not hard. Our five and three-eighths 2022s, our next call period is in July. That's extremely economic to call, especially in, if you think the three-and-a-half-ish range for a new five-to-seven-year issuance. The 2024s are less economic to call.
The extent that we were to get that second investment-grade credit rating, we'd likely look to do something with the 2022s, then probably wait until it's a bit more economic for the 2024s. That's all things we're looking at right now.
Okay. That sounds promising. Then, what's the thinking on preferred shares? Under what circumstances would you issue prefs? I know maybe the market's not perfect right now, assuming the market opened up, at what point does it make sense to include prefs in the structure?
Right now. Well, again, the catalyst there first would be the second investment-grade credit rating. I would think of prefs and hybrids as being sort of fungible products, just depending on the after-tax pricing of each. We have been fairly clear, though, that we're fully funded. That's staying within our leverage targets and using our retained cash flow. Where I could see the necessity for pref, and we absolutely think it's something that makes sense for a company like us, especially deploying capital primarily into tankage. That would be the extent that capital gets to a level that we're not fully funded solely off of leverage in our leverage target range and our retained cash flow. No necessity for pref right now, it is a fantastic tool as we move forward. Definitely need the second investment-grade credit rating.
Okay. Thank you.
Thank you.
Our next question comes from Ben Pham with BMO.
Okay, thanks. Good morning. On your infrastructure results, you mentioned a couple different moving parts in the quarter. I'm curious, what do you think your directional run rate would've been if you think about Viking phased in fully, projects in service, and perhaps some of the curtailments easing a little bit here?
I'll take that, Ben, and maybe Steve can add if he wants. If you think about really what we were referring to, it's that the mid-quarter sanctioning of number of projects, so that's HURC, Viking ramping up, and the 1.1 million barrels. From a run rate perspective, it's probably a couple million CAD above where we are today. The only caution I would give there as we think about the second quarter, we would've had a partial contribution from some of our PRD assets that we sold in the first quarter there. Having sold that February 28th, you will see that roll off in the second quarter. The second one being, if you recall, the Moose Jaw facility is basically that the ICP they pay comes down in the second quarter based on the fact that it's not available for the turnaround.
From a Q1 perspective, I think CAD 2 million above where we were there. Again, I'd caution for the second quarter, there are some offsets that we'll see.
Okay. That's great. When you then think about the full year guidance you guys have put out there's a CAD 20 million range, and it sounds like you're at least hitting the midpoint of that. More to check in, what do you think are the biggest factors to think about when you think about that CAD 20 million range?
Again, our infrastructure is incredibly ratable. That's why we're comfortable giving a range for this year and quite frankly, a range for next year and even a run rate as we exit next year. There's not a lot of factors. We've already brought these in service early. As you know, we're bringing another 1 million barrels of projects into service in Q4 of this year. To the extent that that came in early, that could be some upside to that certainly. Volume doesn't play a tremendous part there, but if you did see some extra volume, metric revenue, that could drive it. Also as we think about bringing on some of the U.S. infrastructure initiatives we have that we expect to bring on sort of at the latter part of the year.
That would all be sort of in around that, absolutely remain confident within that sort of guidance that we gave for the infrastructure segment at Investor Day.
Okay. There was a question about taxes. Is there anything to think about in terms of taxes on your asset sale processes?
No. We have been very efficient as we've structured these asset sales. We have largely There has been very little cash taxes as we've moved through them, we would expect that to be the same as we move through really what is the last asset sale that needs to close, which is our Canadian trucking business.
All right. That's great. Thanks a lot, Sean.
You bet. Thank you.
Our next question comes from Andrew Kuske with Credit Suisse.
Thank you. Good morning. Appreciate the timelines that you've given on the callable debt and your annual review with S&P. Let's just go under the assumption that you get the investment-grade rating from two of the raters. How do you think that sets you up for really pursuing some of the activities in the Permian? Because that's pretty distinct from a U.S. standpoint, and you've got the operational excellence. Does that really change your offering from what you're pursuing in the U.S.?
I think that's more of a commercial question. If we think about our business development activities, to be clear, we are chasing what we view as being the highest quality project within being fully funded. It's not like if we all of a sudden had a bunch of extra funding capacity, that it would change what we're doing in the U.S. I think if I'm reading your question correctly, Andrew, it's more of a does being fully investment-grade make us more attractive as a counterparty? Is that the genesis of the question?
That's essentially the essence of it, that you're a more attractive counterparty to deal with.
Yeah, I don't see that as a big driver in our negotiations north or south of the border. It'll reduce some of our LC costs potentially in our marketing business. That would be really the largest impact. Right now, I have not seen that impact any new commercial negotiations, Andrew.
Okay, that's helpful. When you look at some of the transactions that have happened in the market, there's been quite a few on the year to date in the midstream space, you think about the investment-grade rating that you'll have in all likelihood in the future, how do you think about just your relative valuation versus the transactions that have happened with generally lower quality assets versus your ability to actually underpin longer-term debt at much cheaper than you've got now? How do you think about that dynamic or disconnect?
There's always going to be a bit of a private-public disconnect or to the extent there is. I think all I'd say there is, we look at where we trade certainly vis-à-vis some of our peers, we see our cash flow quality, we see our credit quality, we see have our absolute visibility to delivering the growth we've talked about in a very risk-controlled manner in the fact that it is doing exactly what we're doing right now. We think, if you think of us relative to our peers, certainly there's still room for multiple compression, if not even growth beyond that. I'll probably leave it at that as opposed to commenting specifically on sort of public/private multiple differentials.
Okay. That's great. Thank you.
Our next question comes from Robert Kwan with RBC Capital Markets.
Great. Good morning. Kind of digging in around what you're seeing for additional tankage in Western Canada and just the nature of the customer discussions. Have you seen any changes as you think about a few things around earlier this quarter, the Line 3 delay, anything coming out of the Alberta election, as well as Keystone XL and TransCanada acknowledging it's missed the summer construction season this year?
Robert, we said two to four at the investor day, which was.
A month ago, half ago?
Yeah, a month ago. I would say we're still at two to four.
Yeah.
Obviously, if those pipelines move forward, that would accelerate additional tankage. I think currently we're still at two to four this year, and feel good about two to four next year too, Robert.
Got it.
Anywhere from a million to two million barrels this year and next year.
I guess, Steve, just to clarify, by virtue of you talking about pipelines going ahead, driving more storage, I guess the nature of the discussions really are customers that are looking for the storage for those future expansions rather than storage to stage barrels and the optionality, trying to figure out how they can just get any barrel out at this point?
It's really both. Obviously, we're having discussions with the end users, the big U.S. refiners, then we're also having discussions with the oil sands customers. We're having discussions on both sides of the fence. We think we can continue to grow without those pipelines, again, about two to four, I think the pipelines would accelerate it.
Got it. Just to finish, how should we think about the economics to you from the HURC volume expansion, just given the way the agreement works between you and USD Group? Is it really just fee-based volumes through your portion of the assets? Is there upside there? How much capital did you put out to support the expansion?
We haven't really talked about the capital number. The way to think about the capital is it's similar to the initial contract. It's really all take or pay. Somebody signs up for space, they don't use it at all, we get paid our take or pay amount. They do use it, we get paid the same. If you recall, Robert, the original one is we actually own the pipe going to the facility. USD Group owns the facility. The original contract, the take or pay revenues were split based on capital contribution. Not quite 50/50, but for all intents and purposes, it is a relatively even split. The way to think about the expansion is very similar. It actually took a bit less capital for us on the pipeline side to allow for the expansion.
We actually topped up our capital a little bit to maintain our pro rata share. As you think about the contribution is to take or pay, the other part, which is distinct from USD Group, is to the extent that there's additional volumes that are moving through that terminal, which there would be with the third unit train. That volume most likely needs tanks. That has helped drive additional tankage demand that we've seen.
Got it. Okay. You did top that figure. Sorry, go ahead.
Yeah, we did top it up. Robert, the project economics are very good here because this is really just an expansion project, and it's all with zero terminal value when we look at the economics.
Perfect. Okay. Thank you very much.
Thank you.
I'm not showing any further questions at this time. I'd like to turn the call back over to Mark.
Thank you everyone for joining us for our 2019 first quarter conference call. Again, I would like to note that we have made certain supplementary information available on our website at gibsonenergy.com. If you have any further questions, please reach out to us at investor.relations@gibsonenergy.com. Again, thanks for joining us and your continued support of Gibson Energy. Thank you.
Ladies and gentlemen, this does conclude today's presentation. You may now disconnect, and have a wonderful day.