Good morning, ladies and gentlemen. Welcome to Gibson Energy's second quarter 2020 conference call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Mr. Mark Chyc-Cies, Vice President of Strategy, Planning & 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 second quarter 2020 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. Now, I'd like to turn the call over to Steve.
Thanks, Mark. Good morning, everyone, and thank you for joining us today. Given the uncertain environment when we hosted our last call at the start of May, I'm pleased at how our organization responded and the results we were able to achieve. Following our last earnings call, crude oil prices recovered faster than we expected, from just over CAD 20 to CAD 40 per barrel in June. This increased the opportunities available to the crude oil marketing business and improved margins at our Moose Jaw facility. The response in crude oil price resulted in higher volumes than we anticipated for the quarter at Hardisty, and we also saw the results of our cost reduction efforts across the organization. Our infrastructure segment profit of CAD 90 million really demonstrates its resilience.
Taking out the effects of our Moose Jaw turnaround, it was a very modest decrease from a record first quarter in our infrastructure segment. Volumes at Hardisty recovered to pre-COVID numbers in June, and our Edmonton terminal was unimpacted. Marketing also had a great quarter, with a segment profit of CAD 44 million. As mentioned above, crude oil prices moved up CAD 20 in the quarter. Utilizing our tankage at Moose Jaw and Hardisty, we were able to capture higher contango opportunities than we expected at the last earnings call. With both business segments doing well, adjusted EBITDA came in at CAD 143 million and distributable cash flow at CAD 94 million. These are both new high water marks for Gibson. Again, I'm proud of how the organization responded in controlling cost and commercially. One area that we actually saw an impact from COVID was in our commercial discussions.
With the swift drop in commodity prices, discussion paused. Most of these discussions have resumed, it has set back many of our negotiations. However, we do not see this lost time impacting our CAD 200 million-CAD 300 million capital spend next year. We continue to expect to sanction two to four tanks a year. However, due to COVID and the pause in negotiations I mentioned, this year, a tank or two could slip into next year. With the continued progress of TMX towards a Q1 2023 in-service date, we expect customers will need to secure their corresponding tankage at Edmonton sometime next year. We have room for about 2 million barrels at the Edmonton terminal, and we feel we're very well positioned to compete with the other terminals in the area for that needed tankage for TMX. We've also resumed discussions for additional phases at the DRU.
Interest is coming in from both the producers in Canada and the refiners down in the U.S. With the pause in discussions and given the complexity of the agreements required with this DRU to put together the whole value chain in place, we expect the sanction of another phase will be sometime next year. As I mentioned earlier, oil sands volumes through Hardisty are back to normal. It's on the conventional side of our business where we've seen a more persistent impact and a slower recovery. As a result, we expect the capital outside the fence in Canada will remain limited. In the U.S., we're finishing out our existing capital program and are well positioned to continue to grow when Permian drilling restarts. For 2020, we have reaffirmed capital growth at around CAD 300 million.
Given we're already in August, any capital approved through the balance of the year would largely be filling out next year's program. The remaining spend this year is mostly at the DRUs and the three tanks at the top of the hill there in Hardisty. These two projects are progressing well. We expect one of the tanks will be placed in service in October, and the other two sometime in December. The DRU continues to progress forward, and we remain on track for that mid-2021 startup. There are two other achievements in the quarter I'd like to briefly touch on. First, in May, we released our inaugural sustainability report. We see this as a major step in our ESG journey. We're currently working on our first mission to CDP this summer. We continue to embed ESG principles into our daily decision-making, our strategic planning, and our capital allocation processes.
Second, the refinancing of our notes was a major win. Interest savings will be around CAD 16 million per year. With the savings from the refinancing last year, we have exceeded our target when we became investment grade of realizing CAD 15 million-CAD 20 million in interest savings. In summary, we had a great second quarter. We continue to execute and remain well-positioned. The second quarter demonstrates the resilience of our terminals business and the capability of our marketing organization to find opportunities in nearly any market. We have resumed commercial discussions, and we see further growth for our infrastructure business. We continue to expect to sanction two to four tanks on an annual basis and deploy CAD 200 million-CAD 300 million or more per year. Our financial position is very strong. We are fully comfortable with leverage and payout well below our target ranges.
I will now pass the call over to Sean, who will walk us through our second quarter results in more detail. Sean?
Thanks, Steve. I would very much agree with Steve that we are pleased with how resilient our infrastructure business was in delivering total segment profit of CAD 90 million in the quarter. Clearly, oil prices and volumes recovered much quicker than our outlook on our call in early May assumed. With respect to the different components of our infrastructure segment, our terminals were effectively in line with the first quarter after adjusting for some of the upside volume fees and spot train loading in that quarter. Contribution from our Canadian small terminals and pipelines was down about 40%, which was still slightly above our expectations. In the U.S., volumes increased slightly through the quarter as we completed several tie-ins into our Pyote system, with shut-ins not being a driver, resulting in an increase in contribution to segment profit over the first quarter.
At Moose Jaw, the turnaround was completed on schedule and slightly below expected cost. As a result, we experienced less than half of that CAD 5 million quarter-over-quarter decrease in segment profit we initially expected due to the turnaround. We expect that segment profit from infrastructure will continue to increase through the remainder of the year, which would also imply that we will likely come in toward the upper end of original range of CAD 360 million-CAD 380 million in infrastructure segment profit for the year. With the three tanks coming into service at the top of the hill in the fourth quarter, we remain confident in achieving the quarterly run rate of approximately CAD 100 million exiting 2020 or CAD 400 million on an annual basis that we've previously guided towards.
The rapid recovery in crude oil prices was also very beneficial for marketing, which was able to deliver CAD 44 million in segment profit. As we talked about on our last call, with a steep contango in the forward curve and access to storage at Moose Jaw, as well as at our terminals, we are able to participate in that opportunity. The quarter saw limited contribution from refined products, given the extended turnaround. As the market normalized towards the end of the quarter, we saw improving demand for the heavier ends, though distillate remains fairly weak. In terms of our outlook for the third quarter, we'd expect segment profit to be around the midpoint of our long-term run rate range of CAD 20 million-CAD 30 million.
Our current forecast would also anticipate that marketing adjusted EBITDA will be fairly close to segment profit in the third quarter, though that gap could widen to the extent that we see another larger move up or down in crude oil prices, and if we wait crystallizing our existing positions to the fourth quarter. With marketing segment profit of approximately CAD 80 million through the first half of the year and the third quarter guidance of CAD 20 million-CAD 30 million, we clearly now expect to be well above the full-year guidance of approximately CAD 100 million we provided on our first quarter conference call. We are not going to update that number at this time, though simple math would point to full-year results above the high end of our long-term run rate guidance of CAD 120 million.
Returning to the second quarter results, with both infrastructure and marketing delivering strong segment profit contributions and adjusting out a CAD 20 million non-cash unrealized loss in financial instruments within the marketing segment, adjusted EBITDA of CAD 143 million represents an all-time high for a single quarter. For context, that's a CAD 14 million or 11% increase over the first quarter of this year and a CAD 34 million or 32% increase over the comparable quarter last year. Importantly, more than half of that increase was driven by the growth of long-term, stable cash flows from our infrastructure segment. G&A in the quarter was CAD 8 million, which is slightly below the CAD 10 million a quarter run rate we budgeted at the start of the year.
Though we remain focused on minimizing costs in this environment, it's likely too early to assume a permanent lower rate going forward, as while there are clearly savings on items like travel, there are additional costs in the COVID environment to facilitate working from home, though that's definitely the outcome we're driving towards. Quickly working down to distributable cash flow on a sequential basis, the second quarter figure of CAD 94 million was CAD 8 million above the first quarter of 2020. As Steve mentioned, also a record for a single quarter. Replacement capital of CAD 8 million in the second quarter was CAD 2 million higher, with a portion of the spend during the quarter a result of an unplanned remediation project identified during a regular inspection.
Even with the unplanned remediation work, we still very much expect to be in or around the CAD 25 million number we budgeted at the start of the year. The remainder of the cash outflows during the quarter, such as interest, taxes, and lease payments, were all consistent with the first quarter. Given our distributable cash flow this quarter was CAD 14 million above the second quarter of last year, the payout ratio decreased to 60%, which is well below our 70%-80% target range. Our debt-adjusted EBITDA decreased to 2.4x, well below our 3x-3.5x target. While we have seen a partial recovery in the business environment, our bias will continue to be towards maintaining a conservative financial position. Consistent with that, we believe it is important to maintain access to significant liquidity.
At the end of the quarter, we are only CAD 80 million drawn on our credit facility with a similar amount of cash on the balance sheet. Effectively, we have access to the full CAD 750 million credit facility as well as to over CAD 100 million in unutilized capacity on our CAD 150 million bilateral demand facilities. We also remain fully funded for all our sanctioned capital expenditures. With the continued outperformance of our business in the second quarter, we continue to build some cushion on that position. Given our outlook for capital in 2020 of about CAD 300 million, we will almost certainly carry out some funding capacity into 2021. Subsequent to the quarter, we are able to further improve our financial position by both extending the term of our maturities and reducing our interest costs.
By refinancing our 5.25% 2024 notes with two tranches bearing an average coupon of 2.65%, we are cutting our annual interest cost on that CAD 600 million amount almost in half while also extending the average maturity by two years. Through this refinancing, as well as the one completed in September of last year, the weighted average coupon on our notes would be by far the lowest within our Canadian mid-size peer group at just over 3%, while at the same time having the second longest weighted average tenor. In late July, S&P confirmed our investment grade rating and stable outlook. With that, we've now had both credit rating agencies reaffirm their ratings and outlooks following the COVID outbreak. In summary, the business had a very strong second quarter.
To the extent that we see bumps in the economic recovery over the remainder of the year, we remain well-positioned with a resilient business, as was evidenced in our results this quarter. We have market-leading quality of cash flows, a strong balance sheet, and are more than fully funded. At this point, I will turn the call over to the operator to open it up for questions.
Thank you. Ladies and gentlemen, as a reminder, to ask the question, you will need to press star then one on your telephone. To remove yourself from the queue, please press the pound key. Again, that's star one to ask the question. Please stand by while we compile the Q&A roster. Our first question comes from the line of Jeremy Tonet with JPMorgan. Your line is open.
Hi, good morning.
Good morning, Jeremy.
Just wanted to start off with the marketing segment here. When you back out kind of the mark-to-market noise, it seems like you guys actually hit CAD 64 million for segment profit in the quarter. Just wondering off that, a few questions. In the quarter that was thought to be pretty difficult among the worst quarters there, you hit CAD 64 million. Why do you think CAD 80 million-CAD 120 million is the right kind of guidance run rate for that segment? What drove it that high? I'm wondering if you could provide some incremental color, or I guess, what's not going to happen in 3 Q where you think you're only going to hit CAD 20 million-CAD 30 million in 3 Q when you posted such a strong mark in 2Q?
Well, our segment profit was CAD 44 million, and our adjusted EBITDA was around that CAD 66 million number. Then we've kind of guided to that CAD 20 million-CAD 30 million, kind of that midpoint of that CAD 20 million-CAD 30 million on the segment profit next quarter, and within that range on adjusted EBITDA in the third quarter. At the last call, we said that there was a large contango opportunity developing, and that we had significant storage at our Moose Jaw facility and some storage at our Hardisty facility. To the extent that we'd be able to take advantage of that arbitrage opportunity, we would. After the call, crude oil continued to drop significantly, and so we were able to capture a larger arbitrage than we expected at the last earnings call.
In the second quarter, as far as a marketing and trading organization, we're well through over half of the quarter. The quarter's been very much range-bound around that CAD 40 a barrel. Differentials have been very much range-bound. Volatility always helps in the marketing organization. We did carry over segment profit and have captured profit in the second quarter already. That's why we're confident in that CAD 20 million-CAD 30 million range. The third quarter, we didn't give any real g uidance there other than we believe we'll continue to find opportunities in any market, either through our Moose Jaw facility or through our Hardisty or Edmonton assets, or even down in the U.S. around our Wink terminal, which will really start to start up in September as far as connectivity to downstream pipelines.
Got it. Thanks for that. Maybe just kind of building off of the opportunities that could present themselves here. Marketing has done better than expected for some time here. That's really improved the strength of the balance sheet. The leverage is at quite a low place right now, and it seems like you guys have some balance sheet capacity, maybe to be a little bit on the offense here, whereas maybe you guys have the opportunity for some bolt-on acquisitions that could be small in nature and helpful to you. On the other side of the coin, other mid-streamers, particularly in the U.S., are in more difficult shape right now and might need to divest some smaller assets to help out there. Just wondering how you think about that dynamic and that opportunity set right now.
It's really nice to have the balance sheet that we have in this current environment. As far as opportunities, we've always been pretty leery of doing M&A. The one thing we do want is that sustainable cash flow that we have today. Any kind of M&A, we'd be really looking for sustainability of cash flow on a long-term basis, and additional growth platforms. Right now, we haven't seen any really kind of develop that fit our strategy today, Jeremy.
Got it. If M&A or capital deployment opportunities don't materialize, I guess would repurchases kind of make sense as the next place to put that capital?
Yeah, that certainly is an opportunity. We feel pretty confident on our capital growth program. We said that CAD 200 million-CAD 300 million next year. We feel like we can continue to deploy that CAD 200 million-CAD 300 million as we go out just on our existing platform. We're going to take a harder look at our strategy throughout the remainder of the year and work with the board and see if there are opportunities to adjust that strategy in the future. Right now, we're very confident in what we do and how we've executed on our strategy.
Great. Thank you for taking my question.
Thank you. Our next question comes from the line of Ben Pham with BMO. Your line is open.
Okay, thanks. Good morning. I was wondering, you guys mentioned a couple of high-level impacts from COVID-19. Moose Jaw, all of this being not as bad as impacted. Conventional seeing a bit of pressure. As you look at the last three months, are you able to quantify or you looked at quantifying the impact from COVID-19 in terms of EBITDA? To that, do you think there's some sort of situation or where marketing was some sort of a hedge for you guys here, where infrastructure got hit a bit, but then marketing was stronger than expected, that you ended up marketing acting as sort of a hedge to COVID-19?
Sean, why don't you take that one?
Yep, absolutely. Thanks, Ben. As you heard in our prepared remarks, if you think about the impact of COVID-19, certainly there was some impact in our infrastructure segment. Go through the prepared remarks. Volumes actually recovered a bit quicker than we expected at our terminals. Those ended up effectively in line with the first quarter after adjusting for some of the items that happened in the first quarter. Certainly felt an impact from Canadian small terminals, which was down roughly 40% in the quarter. As we discussed, U.S. volumes actually increased slightly through the quarter, so no real impact there. At Moose Jaw, we did have an extended turnaround, though that came in below expected cost, so the impact is less than what we would've expected on the first quarter call.
It's tough to really say for the marketing business, given it's more of an opportunity-driven business and around the COVID impact, but we absolutely had a strong quarter. I don't know if I'd necessarily say that our marketing business acted as a hedge for our business. I think we have a strategy to focus on crude oil infrastructure and to optimize in around that assets and have assets that complement it, optimize it, or help it grow. I think this quarter you really saw that. We had a somewhat muted impact from COVID-19. We thought we actually had a relatively strong infrastructure quarter, and we had a very strong marketing quarter. I don't know if I'd necessarily characterize marketing as being a hedge rather than just taking advantage of opportunities that were in the market because of our infrastructure assets.
Okay. That makes sense. Can I ask you've always talked about and done a good job of providing us the blue sky scenario on your storage opportunity, your access to land, and just the size of that being decades and the running there. What's your commentary on the blue sky for DRU? Like when you think about the rail capacity and ability to expand your land, the size of the land position. You mentioned phase II maybe next year, what type of running room do you have beyond that?
Ben, you look at the facility, the facility is going to be set up to build five 50,000 barrel a day DRUs. That's the initial design. All the infrastructure into and out of the facility is designed to meet that kind of 250,000 barrel a day feed rate. The ConocoPhillips agreement was at first 50,000. We have significant land and USD have significant land positions up there by the [Hardisty] unit train facility. The 250 limit was designed because that's kind of the capacity of that little over three unit trains a day. We can build another unit train track and continue to add on DRUs. There's really not a lot of limits in our capacity to develop that other than the need in the market.
Okay, that's great. Thanks, everybody.
Thank you. Our next question comes from the line of Matt Taylor with Tudor, Pickering, Holt. Your line is open.
Yeah, thanks for taking my questions here, guys. On new tankage, Steve, you mentioned one of the two tanks may slip into 2021. Can you just give us some updated thoughts on that two to four tank range? Is it fair to say that you're expecting to be sort of in the bottom end of the range? Is there any reason why you think that would change, maybe extended COVID implications or lockdown? Any comments here on that would be helpful.
Matt, if you kind of look at us last year, we contracted two tanks late, like in mid-December. It was pretty close last year. This year, as far as negotiations go, we feel really comfortable. It's really about how comfortable are our customers in entering obligations right now. They see the need for the tankage, and there's a timing. It's just timing issues. The two to four tanks is really something nominal that we throw out there, and over time, we believe that we'll build those two to four tanks at Hardisty. We're still pretty comfortable. Things took a pause for about little over two months in commercial negotiation. With that, we're just trying to be conservative in what we say, to make sure we do what we say we were going to do.
We're very excited really what's happening at Edmonton because TMX continues to progress forward. We have numerous customers of ours, existing customers at Hardisty, that we are discussing additional tankage at Edmonton and support them on their long-haul contracts on TMX. We can build 2 million barrels of tanks there at Edmonton to support that, and I would say we're talking to five or six different potential customers currently on building out the rest of our footprint there at Edmonton.
Great. Thanks for that, Steve. That's helpful. Just a follow-up to that. What proportion of this growth or these tankage adds are you expecting to contract internally? Has your thinking on that shifted a little bit as production is recovering? What I mean by that is, would you be willing to do maybe some additional tankage internally that maybe you would otherwise have reserved for third party or just sort of the mix commentary on the mix would be helpful.
We contracted our first internal tankage last year. That'll come on when these tanks come on in the fourth quarter. We're very comfortable with that tankage. I don't see us contracting any more internal tankage at Hardisty or Edmonton. We're comfortable with our position in tankage right now, Matt. As a mix, I would say, majority of all those contracts at Hardisty are all with third parties, the big oil sands players and the downstream refiners. You look at our contract life there, and it's just under 10 years on our contract life remaining on all those contracts. We really like the length of the contract. We really like the credit worthiness of all of our customers. That's what's providing that really stable infrastructure income that you see quarter after quarter, Matt.
Great. Thanks. That's it for me. Thanks for taking my question, Steve.
Thank you. Our next question comes from the line of Linda Ezergailis with TD Securities. Your line is open.
Thank you. Just wanted to build on this notion of defense versus offense, given your relative strength in the industry, and recognizing that the board has a lot of things to consider. How might they consider timing a dividend increase before the historical cadence? Conversely, what might cause them to pause growing the dividend if they see outsized opportunities potentially or other considerations?
Sean, I'll let you handle that. Thank you for the question, Linda.
Yeah, you bet. Thanks for that, Linda. With respect to your defense versus offense question, as you know, the dividend is at the discretion of the board. We've made it pretty clear that with respect to annual increases, that we're going to look at it once a year, at the beginning of the year, as we did earlier this year. Really, no changing in thinking has happened in around that. I don't expect that we'll review it again until early next year. With respect to what could cause an annual increase to pause, when we increased our dividend earlier this year, we did make it quite clear that we see real benefit in an annual increase. The quantum of that increase will be considered with the board, in conjunction with what we see as our capital opportunities at that time.
We've been very clear that we're going to grow our dividend, or our plan is to grow our dividend with our infrastructure cash flows. We're adding three tanks at the end of the year, so the infrastructure cash flows will be growing. As we look forward, though, to the extent that something were to pause future dividend increases, it would really be a pause in that infrastructure segment profit growth.
That's helpful context. One of the other tenets of your financial strength as well has been essentially a self-funding model which at some point might constrain your opportunities if tuck-in acquisitions do present themselves. I'm wondering what might prompt a deviation of a self-funding model and how might joint venture partnerships with financial investors, instead of or on top of public capital market accessing, comprise part of your funding strategy at some point?
Sean?
Yep, you bet. Thanks, Steve. The self-funding model, Linda, is still very much a tenet of our overall capital allocation philosophy. That's absolutely important to us. We have in our deck that, if you look at the updated deck, the sort of cash flow allocation slides, that with where we sit right now, we view that our self-funding capability to be well in excess of the CAD 300 million we expect to spend this year. We actually expect to carry out funding capacity again into next year. For us not to be self-funded, it would really have to be something inorganic that would drive that, given our guidance of CAD 300 million of capital this year. CAD 200 million-CAD 300 million of next year, if anything, we're going to have excess capacity as we would currently model it.
To the extent that there was an opportunity, something opportunistic, as you noted, that was absolutely on strategy for us. I think Steve answered that earlier with respect to whether or not that's been a focus for us. To the extent that something like that did materialize, absolutely we would look for any measure that would maximize returns to our shareholders to help finance that. Right now, we're really focused on organic growth. As we look at spending CAD 300 million this year, CAD 200 million-CAD 300 million next year, we remain absolutely self-funded with anything excess funding capacity.
Thank you. Maybe just a bigger picture question, perhaps for Steve. Your focus strategy has served you well the last number of years. These are unprecedented times, not just for the industry, but arguably society. I'm just wondering how you're starting to think about potentially adjusting the long-term strategy as it might relate to the types of energy that you might dabble in, let's say, or geographies or parts of the value chain from an infrastructure perspective.
Annually, we kick off our strategy review and take a look at our strategy. We just started that review two weeks ago. Really, it's much more on a macro basis right now is what are the opportunities out there? We've talked to the board, and the board has been supportive in looking at a broad-- they want us to look broadly across the opportunities. Again, just like when I was talking to Jeremy, that stability of cash flow is what got us here. Those conservative guideposts and our financial principles is what got us here. We like the position we're in. We've continued to deploy that CAD 200 million-CAD 300 million a year over the last three years, and we're confident to continue to deploy that CAD 200 million and CAD 300 million on high rates of return projects.
These are those 5x- 7x times EBITDA type projects. Our creditworthiness of our customers continues to shine through, even in these very trying times. We will look for other opportunities along the way and see how we can expand that strategy. Right now, we're in the very early stages of that, Linda.
Thank you for the context.
Thank you. Our next question comes from the line of Ian Gillies with Stifel. Your line is open.
Morning, everyone. I wanted to go back to some of the comments around the opportunities at Edmonton. I was just curious if you think the opportunities around [TMX] could potentially tie up all 2 million barrels of the potential storage that could be built at your site there.
Yeah, we believe it could. Right? That's a good thing for us, right? Because you're talking really long-term contracts. You're talking about the opportunity to these investment grade counterparties. We would love the opportunity to deploy, let's say, CAD 150 million into our Edmonton asset, or more. Right? With that, we also still continue to expand the rail capacity out of that. The facility has over 120 rail loading slots, all manifest, really that help support the local refiners in exporting their refined products into the market. We continue to develop additional projects there. We did several last year, and we have several that we believe we'll contract this year and move forward with. At the end, there are opportunities to buy land adjacent to us, potentially, and to continue to expand our terminal.
Because of our connectivity, it'd be more of a brownfield opportunity on the expansion.
Thanks. That's helpful. You hit on the next question I was going to ask with respect to adjacent land. The other thing I wanted to ask is, you've obviously started to dabble in the Midwest U.S. through an equity investment. I'm just curious around what you see with respect to business development opportunities in that region at this point in time.
At this current time, that spread is pretty tight. Really that's a rail arbitrage opportunity between our Edmonton and our Hardisty assets, and our Moose Jaw facility. We kind of like where the facility sits and how it sits. It really supports Canadian oil sands. We'll continue to work with our partner there, who is the commercial lead on that, to see if we can generate more opportunities at that facility.
Great. That's helpful. Thank you very much. I'll turn the call back over.
Thank you. As a reminder, ladies and gentlemen, that is star one to ask the question. Our next question comes from the line of Matthew McKellar with RBC Capital Markets. Your line is open.
Thanks very much. Good morning. This is Matthew, on for Robert Kwan. At Moose Jaw, can you please just give us an update on your outlook for some of the key products there? I think you said the heavy end of the barrel, you'd see demand kind of tick upwards. If you'd sort of run through your outlook by key products including asphalt, roofing flux, drilling fluid, et cetera.
Well, I would say roofing flux is really kind of unchanged in its margin. Asphalt is a pretty typical year in its margin. On the drilling fluid market, I would definitely agree. I mean, that has been challenged. The lighter end products, the margins on that have been challenged. You kind of look at our second quarter earnings at Moose Jaw, and you look at what our third quarter earnings at Moose Jaw are going to be, and the reality is that they're going to be higher than the first quarter earnings. That's just due to the marketing organization and doing opportunity buying of crude oil and utilizing the tankage, both on the refined product side and on the crude oil side, to really help generate revenue across Moose Jaw, even in these extremely trying times.
We do believe that the markets will continue to open up in the third and fourth quarter, though, especially on the asphalt and the roofing flux side.
Great. Thanks. Maybe as a follow-up, just in the Permian, could you please give an outlook on, I guess, on what you're seeing right now in your existing assets, and then talk about maybe your plans for capital deployment as it stands today versus maybe how you were thinking about things pre-COVID?
First quarter to second quarter, actually, our volumes increased across the two quarters. We're now moving more volume than we've ever moved through our asset, and that's because we've connected up additional wells in the quarter, and we connected up an additional producer in the quarter. We have another producer that we'll connect up in September, and two connections there in Wink that we'll complete in the third quarter. I would say probably for the rest of the year, we'll probably be idle on capital. We've said that CAD 25 million-CAD 50 million, and I believe we'll be able to spend that next year. In just kind of the short expansions of the gathering system, two new producers there, or existing connections or tankage there at Wink. We're not a typical crude oil gathering system. We don't well head connect.
We do CDPs. With that, what that means is that we'll go in and get an area dedication, say we get an 80,000 acres area dedication with a drilling commitment on it, we'll put one or two CDPs on that, and then the producer lays into us. Because they have the land rights to do that much more than we do. That also allows us not to deploy capital just to stay in the same place.
Great. That's all from me. Thanks very much.
Thank you.
Thank you.
I'm not showing any further questions in the queue. I would now like to turn the call back over to Mark Chyc-Cies for closing remarks.
Well, thank you everyone for joining us on our 2020 second quarter conference call. Again, I'd like to note that we have made certain supplementary information available on our website, gibsonenergy.com. Lastly, if you have any further questions, please reach out to us at investorrelations@gibsonenergy.com. Thank you, and have a great day. This will conclude our call.
Ladies and gentlemen, this concludes today's conference. Thank you for your participation. You may now disconnect.