Earnings Call: Q3 2019

Nov 5, 2019

Morning, ladies and gentlemen. Welcome to the Gibson Energy's 2019 Third Quarter Conference Call. Please be advised that this call is being recorded. I would now like to turn the meeting over to Mr. Mark Hitesh, Vice President, Strategy, Planning and Investor Relations. Mr. Hitesh, please go ahead. Thank you, operator. Good morning and thank you for joining us on this conference call discussing our Q3 2019 operational and financial results. On the call this morning from Gibson Energy are Steve Spalding, 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. We delivered another strong consistent quarter with EBITDA of $121,000,000 or $110,000,000 on a comparable basis after adjusting for a one time change in pension liability and another strong quarter in distributable cash flow of 72,000,000 dollars Our infrastructure continues to grow, reaching $82,000,000 in the quarter, an 8% increase from the same quarter last year. $73,000,000 of that came from our Terminals and Pipelines business. Marketing had another strong quarter with $37,000,000 in adjusted EBITDA. We continue to focus on delivering and advancing our strategy throughout each quarter. That means securing $200,000,000 to $300,000,000 in high quality infrastructure projects each year and ensuring that we continue to grow our distributable cash flow on a per share basis. At Hardisty, we're in the process of placing 2,000,000 barrels of storage into service at the top of the hill in November. The project is on budget. With the big win and accelerating the schedule, 2 of the tanks were initially expected to be placed in service in Q1 of 2020. We are very happy with our project delivery team and on the execution and the early cash flow. And commercially, we continue to progress additional tankage agreements and expect to announce additional tankage before the year end. Based on our existing discussions with potential tank customers, we remain confident in our ability to grow at that 2 to 4 tank run rate for the next few years. This will allow us to invest $100,000,000 to $200,000,000 in our terminals each year, which is the best risk return opportunity within our portfolio. At Hardisty, we continue to work with our partner at the rail terminal USD to secure commercial support for our DRU project. We will need to have the project fully underpinned by long term take or pay contracts in order to sanction the project. At this point in time, I would say that we have a well that we are well advanced with one customer on the commercial agreements to underpin a portion of the first 100,000 barrels a day phase, and we continue to advance our engineering design of the facility. Based on our work, we feel that we have a very competitive solution, especially considering our ability to leverage our existing terminals and rail infrastructure at Hardisty. This was also the Q1 at Moose Jaw with the expansion in service. The project was completed ahead of schedule and below budget and increased capacity from 17,000 to 22,000 barrels a day. The expansion included heat integration equipment that will require very little additional heat. The 30% increase in capacity resulted in a 25% reduction in greenhouse gas on a per barrel basis. We're looking at several high return optimization opportunities as we fine tune the capacity the facility after the expansion. We continue to be successful in the U. S. Relative to the milestones we set out earlier this year. We are executing on our strategy. And beyond what we talked about at our first Investor Day nearly 2 years ago. 2 weeks ago, we placed the Piote East pipeline in service, and we are now transporting crude oil into Wing. This is a big win for us. It's the first infrastructure asset Gibson Energy has ever built in the U. S. The project team did a great job executing on the project on schedule and on budget. That said, we're seeing slightly lower volumes on the pipeline today than our initial expectation. This is driven by a delay in the timing of some of the completion of the deeper wells, which we expected to drive most of the volume gain. We're not too concerned as the operator continues to drill on the dedicated lands within their minimum drilling commitment. And the wells are performing 50% better than we estimated in our original type curves. From a commercial perspective, once you have a pipeline in service, you have the advantage of securing additional gathering opportunities around that pipeline. It has been no different with Pyre. We recently entered into an agreement to connect another producer into our system. While existing volumes are small, we doubled our land dedication to our pipeline at a very minimal cost, while adding additional drilling commitments. The U. S. Team continues to pursue additional opportunities with numerous parties, mostly bunts and singles, but leveraging the asset we have to perhaps more than double the area dedication and drilling commitments in the future. At Wink, we're having discussions with several parties for tankage. It's still early in the process, but there's certainly the potential for Gibson Energy to build its first tankage in the U. S. In the next year. In all, we continue to target 5 to 7x EBITDA projects. We see many different opportunities to deploy $50,000,000 to $100,000,000 in the U. S. For the next few years, and there's no need for us to reach. In summary, this is another strong consistent quarter from both an operational and financial perspective. We continue to execute. We are very focused on delivering our capital projects. On the commercial front, we remain confident in our ability to deploy $200,000,000 to $300,000,000 per year or more in capital into high return contracted infrastructure projects. Our financial position is very strong. We are fully funded with marketing outperforming and providing additional cushion, leverage and payout both remain well below targeted levels. As I say each of these calls, the objective is very clear. We need to keep executing our strategy, keep doing what we said we would do. I will now pass the call over to Sean, who will walk us through the financial results in more detail. Sean? Thanks, Steve. As Steve mentioned, we had another strong quarter. Results from our infrastructure business were slightly above our internal expectations and we're again pleasantly surprised by the performance from marketing. This continues to be a very busy year. In the first half of the year, we completed the sale of all of our non core businesses on time and within target proceeds and received our 1st investment grade credit rating from DBRS. More recently, S and P upgraded the rating of Gibson to investment grade, which allowed us to access the investment grade market for the first time in September. We are very pleased with how well the offering went and we appreciate the support we received from our debt investors. In total, we had 72 investors in the offering with roughly 40% of those investors entering the credit for the first time. This receptivity would compare very favorably with recent offerings from our peers and would be the highest experience for an initial investment grade offering in the Canadian energy infrastructure space. We have often spoken about reaching investment grade as a key milestone for the company. So let me quickly comment on why we feel that way. Not only does this highlight our quality of cash flows and further reinforce the transformation into a pure play crude oil infrastructure company, but it also has immediate benefits from a cost of capital perspective. With the most recent offering, we are able to reduce our interest rate from 5.38 to 3.6%, a decrease of over 175 basis points. And that is with 10 years of tenure on the new issue, meaning the interest savings would have been even higher if we had chosen to issue a shorter note. To put this in context, if you look at the cumulative reduction in interest costs that the company has seen since IPO, it's quite amazing. At IPO, interest costs were around 10% and in 2015, they were about 7%. In 2017, we refinanced our debt to get our interest down to 5.38 and 5.25 and now down to 3.6%. Those are very meaningful savings. Assuming today's level of term debt, annual interest savings at the recent 3.6% coupon would be nearly $60,000,000 from IPO, $30,000,000 from 2015 and over $15,000,000 from 2017. On an actual year over year comparison, upon refinancing our 2024 notes, we will have saved $15,000,000 to $20,000,000 a year, which in context is nearly a full year of growth in distributable cash flow at a 10% target. That's a very big win for us. Speaking to the financial results, reported adjusted EBITDA for combined operations was $121,000,000 in the quarter, But adjusting for the $11,000,000 we booked related to an amendment to one of our legacy pension plans, the resulting $110,000,000 is more comparable to other quarters and more indicative of the business going forward. The $110,000,000 would be a $37,000,000 decrease from the Q3 of 2018. Of that, dollars 33,000,000 would be a decrease in marketing EBITDA, Where marketing segment profit decreased by $17,000,000 this quarter we had a $12,000,000 unrealized gain on financial instruments, whereas we had a $4,000,000 unrealized loss in the Q3 of last year, accounting for an additional $16,000,000 difference in comparable adjusted EBITDA. Distributable cash flow from combined operations of $72,000,000 was a decrease of $13,000,000 relative to the Q3 of 2018. Again, marketing was the largest driver of the change, although higher current taxes in the Q3 of last year as a result of the higher marketing earnings made the GAAP narrower on a distributable cash flow basis than on a comparable adjusted EBITDA basis. Other notable changes relative to the Q3 of last year were as follows. Infrastructure segment profit was up $6,000,000 on a continuing basis as a result of new projects coming into service over the last 12 months, including the 3 tanks at Hardisty or 1,100,000 barrels of storage, the Herc rail facility expansion and the Viking pipeline. Also, with the expansion of the Moose Jaw facility, the ITP that refined products within marketing paste infrastructure was also increased starting in the Q3 of 2019. Also this quarter, reported G and A was a gain of $3,000,000 a result of the pension adjustment I spoke to earlier. Absent this gain, G and A would have been $8,000,000 and in line with the Q3 of last year. Interest expenses and finance leases were slightly higher in the Q3 of last year and replacement capital was the same this quarter last year. On a sequential basis, we very much anticipated a decrease in marketing segment profit as differentials remain narrow and volatility, which often drives opportunity for the crude oil business was somewhat modest. That said, we outperformed our expectations with marketing $12,000,000 higher in the 3rd quarter than in the 2nd quarter on a segment profit basis, though very similar when adjusting out unrealized gains or losses. The contribution from infrastructure was up $10,000,000 quarter over quarter after adjusting for the remediation provision last quarter. Specifically, the Q2 had the annual turnaround at Moose Jaw, which was a bit longer this year to accommodate the expansion work without having to shut down the facility for a second time, which was the main driver of a roughly $5,000,000 decrease in Moose Jaw's contribution relative to run rate in the other three quarters of the year. Upon reentering service after that turnaround, Moose Jaw's capacity was higher with a corresponding increase in the ITP that Refined Products pays to the infrastructure segment. Also, we saw a small increase in the Hertz rail facility and on our throughput at our terminals. On a distributable cash flow basis, the 3rd quarter was below the 2nd quarter with an $8,000,000 increase in current tax being equal to the decrease. With this quarter added and rolling off a very strong Q3 in 2018, distributable cash flow from combined operations for the trailing 12 months is now at $318,000,000 resulting in a payout ratio of 60%, which is well below our 70% to 80% target range. Debt to adjusted EBITDA remained relatively constant 2.6x and remains well below our 3x to 3.5x target. Given that marketing in the Q4 of 2018 had its best quarter since IPO at $82,000,000 in segment profit, we expected both our payout and leverage to increase slightly. But that is why we always think about those metrics in the context of a much more sustainable contribution for marketing as well as our leverage not exceeding 4 times and payout ratio being less than 100% on an infrastructure only basis. And in terms of our outlook for marketing, given our recent experience of meaningfully exceeding our mid cycle assumption for a number of quarters in a row, we took some more time to look at whether we ought to adjust that expectation. One thing we noticed is that the mid cycle nomenclature made it sound more like P50 or average estimate, where we view it as a conservative outlook that we should meet or beat in almost any environment. Importantly, we want to be clear that our ability to self fund our capital program does not rely on outperformance from our marketing segment. Hence, we take a conservative view. As a result, going forward, we will refer to it as our long term run rate for marketing. We also wanted to make sure that the range was still valid. In that light, with the nearly 25% capacity expansion at Moose Jaw, refined product ability to generate margin has increased. Also, since Steve joined, transforming the marketing organization has been a focus and we are seeing the results of that. The marketing organization has demonstrated that it's able to find opportunities in most markets, whether wide or narrow differentials and even find those locational, quality and time based opportunities when volatility is fairly low. It's the assets that we have in place, but it is enhanced by the processes and capabilities the team now is in place. As a result, we're going to adjust our long term run rate to be between $80,000,000 $120,000,000 per year or $20,000,000 to $30,000,000 per quarter. In the Q4, we expect to be at or just above the upper end of that range. While marketing will benefit from realizing the gain from financial instruments that was unrealized at the end of this quarter, we are seeing headwinds for refined products with asphalt pricing notably weaker in part due to European products being brought in into the North American market. Also on the distillate side, as a result of noticeably lower drilling demand in Canada, we have focused our sales in the U. S. Where we realized a bit lower margins in part due to higher transport costs. In summary, the Q3 was above our internal expectations. Infrastructure was slightly above where we thought it would be and marketing was able to beat our outlook. As I just spoke to, it's not something we count on, but that little extra will help fund will help further charge the balance sheet and down the road fund capital. Importantly, we continue to check all the boxes in our governing financial principles. We remain fully funded for all our sanctioned capital with payout and leverage well below target levels and we are now fully investment grade, which is one of our major goals. We are in a strong position and that strength will continue to build as we place additional infrastructure into service over the coming quarters. At this point, I will turn the call over to the operator to open up for questions. Our first question comes from Bob Hope with Scotiabank. Good morning, everyone. Maybe to start off on Steve's comments on conversations with customers regarding additional tankage opportunities. Can you just add a little bit more color there? Are you looking to finish up the top of the hill, which would be 2 additional barrels at Hardisty? Would it be something larger than that? Or would it be something at Edmonton, which could be tied to Trans Mountain? It's not Edmonton at the current time. This is the pipeline negotiate over the tankage negotiations that we have going on currently are with are well advanced with 2 parties. 1 would be one would help do build those 2 tankage at the top of the hill and then the other is a different location within our terminal. Just recently, our engineering group has developed an opportunity to expand the top of the hill to anywhere from 1,000,000 to 2,000,000 barrels, which really in these when we're building out a as I said in the past, when we're building out a platform, those final tankage are in that 5 times EBITDA range. All right. That's We were in the Yes. Thank you, Ross. And then as a follow-up, just maybe in terms of the DRU opportunity at the rail terminal, I want to get a sense of potential capital there. And when you're talking to customers, what is the main kind of concern there? Is it the market for neat bit or new pipelines coming onto service? Just want to get a better sense of that opportunity. Yes. We really haven't shared, Rob, on the actual amount of capital. Obviously, that's a joint venture between us and USD. When we're talking to customers, we're talking to both refining customers and producing customers. This is a very complex transaction and that not only the DRU is involved, rail loading in our facilities involve long term rail contracts and then the unloading facility and then the access to the market. And so it's there's probably 13 different agreements that have to be executed to actually make this happen. And so these are very complex transactions and we're well down the road. But I can't stress how complex each contract really is. I appreciate the color. I'll hop back in the queue. Thank you. Thank you. Our next question comes from Robert Catellier with CIBC Capital. Just a couple of follow-up questions here. I'm wondering what you've seen in terms of customer demand and behavior since the rail exemption was provided to the production curtailments last week? Well, I mean, we haven't had a lot of time to digest that neither has the customers. We did we had heard kind of that this may happen. Obviously, this is a big positive for us at Hardisty and at Edmonton, and our rail terminals at Edmonton and Hardist and our and at HURC at and I think it does give us an opportunity. I know that we went to or we are expanding to 3.5 unit trains a day there at Hardisty. We'll look to potentially push that another half a unit train potentially. And let's see if there's other opportunities to continue to expand rail capacity because we think this is one way that our producers can develop their long term reserves. Okay. As you've ventured into the U. S, looks like you've had some initial success. And as you look to expand that footprint into tankage, what are the real differences in the commercial profile of tank agreements in the U. S. Versus those in Canada? Are they substantially different? Or do you expect returns largely the same as what you're getting in Canada? They are substantially different type of transactions. And when you think about our assets at Hardisty, at Hardisty, generally our customers are really the large integrated upstream oil sands producers. And they use our assets as operating storage as they launch down into the states either on the egress pipelines or through our rail terminal. When you look at the tankage that we're looking to build in the it's it is the producers, but generally it's more the long haul shippers on the pipelines. And so in the States, you've got there at Wink, you've got numerous, numerous pipelines being built into Wink and out of the Wink area and you have extremely amount and there's an extreme excess of pipeline capacity. So they reach all different markets from Corpus to the Houston Ship Channel to Beaumont, which allows you to get all the way over even into the river corridor. So the people that we're talking to generally are those long haul shippers that want access to supply and want access to multiple markets. And the contracts around that are in the 5 years. But the one thing we are seeing is a 5 times type of EBITDA builds around there to get at least our payback in the 1st 5 years. Okay. So it's sort of similar to the pipeline. It's just a different market, different contract structure? Yes. Yes, they're definitely take or pay, lease agreement like all storage. But the storage is not overbuilt. It's what we believe is overbuilt is really that pipeline capacity right now. And so there's a giant sucking sound in that area for supply. Okay. And then my last question is on your tank outlook for 2 to 4 tanks that hasn't changed in a while. I'm wondering what you're assuming in there for IMO 2020 or if you view there as some potential upside? IMO 2020 would probably more affect our Edmonton terminal and some potential small tankage around the refined products business right now, Robert. Okay. Thanks, guys. Thank you. Our next question comes from Ben Pham with BMO Capital Markets. Okay, thanks. Good morning. I wanted to follow-up on the DAU conversation and some of the questions. And when you I guess you characterize as advanced discussions with 1 counterparty. Just wondering, how do you guys think about your strategy around the contracting on DRU? Do you expect 100% contracts per sanctioning? And is it correct to think that you've already kind of ironed out the tolling fee and duration and now it's really just Board approvals and all these different 13 different contracts that you got to deal with? Thanks, Ben. It's Sean here. So a couple of questions there, but what I would say is it will be backstopped by 100%. So this is not sort of partial commitment to secure it. If it goes ahead, we'll have the backstopping that we require. As Steve alluded to in the Q and A, there's a number of different contracts here. The negotiations are very live. I think as he said, quite advanced and we remain very optimistic. But we're not going to characterize exactly where that stands in the negotiations visavis, is it just waiting for approval at the Board versus how much is left to be done? I mean, I think our overarching comment would be that we continue to advance it. We remain optimistic. But as Steve alluded to, there is a number of contracts. Okay. And this is long term contracts. So this is that 10 year type of contracts for these type of assets. Okay. So it's just consistent with just kind of how you think about tankage. And then maybe just when you think about just unlevered balance sheet, marketing numbers moving higher, I guess, I mean, you could potentially self fund this DAU project. Can you comment on that? And then how does dividend growth kind of fit in as you add 2,000,000 tanks in November? Yes. Again, 2 different questions. I'd say on the self funding, we've always talked about or more recently talked about sort of being right now self funded and that's sort of $250,000,000 circa amount of capital. We're right now finalizing our capital plan for 2020. As you would have seen in our press release, in Steve's quote, he commented on being very confident of 200 to 300. As always, we'll come out with our capital in December. So we'll refine our funding thoughts at that time. Certainly to the extent that we do remain self funded even with the DRU that would be the goal, but it's going to depend really in around how we refine that final piece of capital. With respect to dividend growth, really not nothing has changed there from a messaging perspective or capital allocation perspective. From a capital allocation perspective, our priority is going to be allocation to new growth projects, if they continue to come in at this 5 to 7 times multiple with long term contracts with high quality investment grade the extent that we have excess capital above that, To the extent that we have excess capital above that and it's from the tankage side as you alluded to, we would be biased towards a modest dividend increase. But again, that's completely at the discretion of the Board and we'll review that in Q1 as we always have historically. To the extent that that excess cash flow comes to the marketing business and above growth capital opportunities, then we buy a share buyback in that event. So again, we're going to revisit the dividend in Q1 with the Board and would expect more of an update then. Okay. That's great. Thanks, Sean. Thanks, Steve. Thank you. Our next question comes from Jeremy Tonet with JPMorgan. Hi, good morning. Just want to start off with the marketing side here and the uptick that you had in the guidance as what you thought is kind of more normalized. Provided good color there, appreciate that. But I was just wondering if you could kind of walk us through maybe 1 or 2 examples of what has materialized to be better than what you originally expected when you laid out the guidance before? So when we laid out our guidance before, we had we have an earnings stream that we track on a daily basis out of our marketing organization. And so what we do is we sit down with our marketer at that time and the marketing organization and get a projection from them to help kind of provide you all with an outlook. Probably what occurred is some opportunities on the quality emerged in the last 2 months of the quarter that we were not anticipating. Since that time, those opportunities have faded away. But other opportunities such as the wider spread between WCS and WTI have emerged. So things change really on a monthly basis when it comes to what drives that marketing organization. And what a good organization does is makes money in really all environments. And I think our team is starting to get more consistent at that. That. That's helpful. That's it for me. Thanks. Thank you. Our next question comes from Linda Ezergailis from TD Securities. Thank you. I don't know if this is a follow-up question maybe from what you were describing to Jeremy, but can you comment on specifically how this Keystone outage might affect your business if at all in Q4 or beyond? And I'd be interested in that context. Any volatility in a marketing organization creates opportunities. So the Keystone going up, Keystone coming back on, all of that is volatility that gives an opportunity to either lose money or make money in the market. And we have a very disciplined organization. And so we hope that the opportunities will materialize, some additional opportunities will materialize in December, but other opportunities that we've counted on throughout the year have faded away. Okay. And just as a follow on, can you comment on what sort of opportunities are emerging and growing on your U. S. Marketing business? Well, our U. S. Marketing business is really quite small and it is very much just associated with the small business that we have and that we're bringing on the producer services side. We don't have the tankage and the connectivity and the infrastructure and the market complexities that we have and position that we have in Canada. Okay. Thank you. And maybe just also furthermore on your DRU opportunity, can you comment on what the range of ownership Gibson might own on various components of the DRU might be versus your USD partners, JV partner and or would it be the same level of ownership in all pieces of it? And maybe comment on if there's any sort of if there's any considerations on or complexities if there's any considerations on or complexities on that front? Thanks, Linda. I'll start this certainly. So it's basically fifty-fifty flow with USD at the DRU. So we would be 100% Gibson, but that's a smaller part of the overall project. The ownership of the rail facility itself, which obviously is integral to the DRU, that doesn't change the relationship we have with USD. And then anything downstream of that would either be USD or whatever the downstream option is for the client of the DRU. From a complexity perspective, not really with respect to in around the DRU and the rail facility. I think this is all something that's obviously been investigated thoroughly and we are comfortable with. I don't know if there's anything you'd add from the complexity side, Steve? Well, you got to think it inside the term inside the fence and outside the fence. So inside the fence would be the DRU cells, the diluent recovery itself. The outside the fence would be the piping to and from the tankage, the heated pipes, probably that's almost a 2 thirds outside the fence, 1 third inside the fence. Everything outside the fence, we very much understand. And we have built these assets over and over again at Hardisty. Inside the fence, we're probably going to look at an EPC firm to come in and just turnkey that and take all that risk of performance and cost overruns away. Okay. Thank you. So, is it reasonable to say that beyond just kind of figuring out your inside the the the commercial details are really what is taking the most time? There's really nothing on the engineering side. This is to me a very simple process. I've been involved in fractionation and separation and stabilization my whole career. And this is probably one of the easier assets I've seen as far as building. So this is not an issue. Probably the complexity really is I listed the 13 potential agreements. So how do they interact? How do they act with each other? Not the individual agreements themselves, it's really how did the other agreements all act together. Okay. That's helpful context. Thank you. Thank you. Our next question comes from Andrew Kuske with Credit Suisse. Good morning. Given the balance sheet you've got now and your access to debt markets and the cash that you're just sitting on, you've got a bunch of optionality. But how do you think about allocation of capital into greenfield, brownfield and then potential acquisition opportunities? What are the real return thresholds you're really looking for in a profile on those returns? We don we don't have nearly as much cash in the balance sheet because post the quarter we did pay down our 2022 notes. So that's sort of 345 odd we had, it was just parked there given the 30 day call period. But the answer to the question is and we've said this a number of times, the move to investment grade, the leverage profile we have, it really doesn't change how we think about invested capital. We remain very disciplined on focusing on those projects at that 5 to 7 build multiple backstopped by long term contracts with high quality counterparties. The quality of cash flow is absolutely important to us. So that would be either greenfield or brownfield. I think we'd view something like the DRU, which would absolutely fit into that as being more of a brownfield project given our Hardisty asset, but really hasn't changed in our view on M and A hasn't changed either. If we think about the opportunity set we have on a growth capital perspective, we don't really see the need for M and A within our strategy. We feel like we have clear visibility into those high quality projects to deliver the 10% circa cash flow growth per year that we've talked about. So that allows us to be extremely disciplined as we think about M and A. So having a balance sheet that's fully charged really doesn't change that view at all and we remain extremely disciplined as we think about deploying that capital. Okay, that's very helpful. And then maybe just focusing a bit more on the brownfield opportunities you have. What's the quantification of the brownfield opportunities just within your core asset base in Alberta? Are we talking $500,000,000 $1,500,000,000 that kind of ballpark that you have good line of sight on at this stage? I mean, as I said earlier, we're going to come out with our capital guidance in December. I think if you looked at our investor presentation, we outlay what we expect to deploy annually with it being sort of that $100,000,000 to $150,000,000 per year on the tankage side or in around the tankage, dollars 50 to $100,000,000 in the U. S, dollars 50 outside defense that obviously wouldn't include the DRU. As we sit here today, none of that changes. Steve talked about or sorry in Steve's quote within his press release, dollars 200,000,000 to 300,000,000 dollars to the extent that the 2 to 4 tanks continues to materialize, which we very much still think it will. You can move that capital forecast forward for however many years you want to. I mean, we never really provide guidance beyond the next year, just given the nature of our contracts. What I would say from a brownfield perspective, we remain very confident in sort of what we've talked about previously. And as I said, we'll update that in more detail with the specific capital guidance in December as we always do. Okay. I thought I'd try. Thanks. Thank you. Our next question comes from Robert Kwan with RBC Capital Markets. Good morning. I guess just kind of starting with some of the benefits of having low leverage on the balance sheet. Just wondering with that low leverage and the high degree of confidence you seem to have in both tank contracts at the end of the year and then into next year, just wondering what's your willingness to pre build some of that tankage especially for customers that might want it a little bit quicker? I think philosophically, Robert, if you think of overall that the view hasn't really changed. We'd like tankage to be backstopped by long term contracts before sanctioning it. We talked about it previously. The one instance where we would consider that would be if there is material synergies from building more than 1 tank or multiple tanks at once. So to the extent that if you think of sort of up at the top of the hill or a new zone, if we have 1 or multiple tanks backstocked and building further tanks or a further tank in conjunction with that results in material cost savings and doing at the same time, that is something that we would consider. But I think overall, our philosophy hasn't changed where we'd look to have Tang sanctioned, prior to building. Got it. And then on the dividend, you had mentioned if marketing exceeded the range, you'd probably look to share buybacks first. But I'm also wondering with leverage well below 4 times, is there a low end where you can really think about taking the interest savings from that the delevering that you've had to date and then deliver that as dividend growth? That's It's an interesting question on the interest savings. I think I would look at it as an overall funding profile as opposed to specific to the interest savings. I mean, there's been other savings if you think about our cash flow conversion from EBITDA to distributable cash flow just beyond that. Like if you look at our maintenance capital from 2016, it would have been multiples of what it is now, just given the nature of our business. So I don't think you can focus specifically on the interest savings. We did exit and have been in around that 2.5 times for certainly from tail end of 2018 through to now. The real question is, what does the funding plan look like as we move forward? And the other part is, as you think about that 2.5 times, we still do have our target of being 4 times or less on an infrastructure only basis. So notwithstanding the fact that we're 2.5, which is well below our targeted range, we are in right in around that 4 times as we sit here today on an infrastructure only basis. With respect to the dividend and the question specifically, as I said earlier, this is something that we'll discuss with the Board and that'll be more of a focus as we think about Q1 and look at our overall cash flow and capital forecast at that time. Got it. And I can just finish with a follow-up here on just as philosophically how your management team thinks about the dividend. If you start growing the dividend, is philosophically what you want to do regular annual increases? Are you okay with sporadic increases depending on the capital situation? Again, this is something that's ultimately at the discretion of the Board, but I think our bias would be to the extent that we start modest dividend increases. It's something that we can hopefully deliver annually in conjunction with delivering new infrastructure, new tanks and new infrastructure projects annually. That's great. Thank you. Thank you. Our next question will come from Patrick Kenny with National Bank Financial. Yes, good morning guys. I appreciate all the color on the 80 to 120 outlook for marketing. But just curious your thoughts on what sort of heavy oil differential environment would underpin those bookends? Sounds like the current $22 a barrel differential environment? I mean this year has been a we've seen obviously changes throughout the year where we've traded at a minus 11 for numerous months until just recently where we've seen it go up to minus 20. So and we've been able the marketing team has been able to make money in really all of those environments, even with a lower crude oil price in that $55 range really kind of throughout the whole period. So at the end of the day, a higher spread obviously positively impacts our Moose Jaw facility because the products that we make there are really marketed into the U. S. Via rail and especially type products. So a higher spread there is very beneficial. What happened throughout most of the year, one of the big benefits of having a Moose Jaw facility is when we looked at the beginning of the year, you had $24 to $26 forward month spreads, even though you were trading at minus 11. Dollars you had 2nd you had 3rd and 4th quarters trading at $20 to $24 We locked in some of that for our Moose Jaw facility, and then realized that on the hedge gain across the year, where the facility itself didn't benefit because it lived in the live environment of the minus 11. Okay. Thanks for that. And then with the new outlook here for marketing, Sean, just curious if you had a refresh on cash tax guidance for the year and maybe into 2020? No, not at this time. I mean, I think philosophically, we'd look at the same way where our infrastructure business, given the capital spend we had, is not significantly cash taxable. And you can think about our marketing business being largely cash taxable. So, if looking to build into your model, so the guidance I would give is sort of increase your cash taxes commensurate with the increase in marketing guidance. Got it. Okay. Then last cleanup question here. Just was curious if there's any update on the $15,000,000 provision at Hardisty or any update on the statement of claim there? No, that's going to be a long term. And so when we did that statement of claim that was really looking out over the next 20 years, what we think that may result in us on as far as potentially to keep that contained. And of course, we are trying to recover those costs, but we do think that will be a very long process. All right. Thank you. Thank you. Our next question will come from Ian Gillies with GMP. Good morning, everyone. With respect to the DRU, you had highlighted a build timeline of, I believe, about 28 months last quarter. Has anything changed within your due diligence since that time to alter the construction timeline outlook? Yes. I'm not thanks, Ian. I'm not sure where the 28 months actually came from. I think I saw that out there. Build timeline, we would think would be actually a fair bit lower than that. We think of it as being more in the sort of 18 month range. So we had never put out the 28 months specifically. And yes, overall, I think we think of the build time as being circa 18 months. So think of mid-twenty 21 in that range COD, if this progressed prior to the end of the year. Okay. And we do continue to as we're in these negotiations, that's not impacting really our ultimate timeline right now because where we are in the process, we are we do have some back we have backstops in place to continue to develop opportunity. Okay. And I apologize if I missed this during the prepared remarks. As you think about EPC contracts and building the facility, is this the type of project that you could get built lump sum or is it going to be cost plus or how do you envision that piece working? Yes. And I tried to explain that. We think inside the fence, which is the facility itself, we can box in and we can do a lump sum and take all the risk out of that and get performance guarantees on how it operates. Outside the fence, which is probably the majority of the cost, so the largest piece of the cost is really something we understand quite well, which is building pipelines and tankage. Okay. Sean, with respect to maintenance capital, I mean, it's trending, I guess, towards low end of guidance this year. I mean, should we be expecting any sort of catch up in Q4? Or should we what sort of run rates we're thinking about there? No, no catch up in Q4. I think as you said, we're trending certainly to the low end of our range. As you're aware with the evolution of the business we've had, our maintenance capital is primarily Musha and tank turnarounds that we have. So guidance is in the sort of circa 20 to 25 range. It looks like we're going to come in the low end of that for this year. We're going to come out with our formal capital budget in December, but I expect the guidance for next year will probably be very similar to this year in the 2025 range. Got it. Thanks very much. I'll turn it back over. Thank you. And our next question will come from Elias Foscolos with Industrial Alliance Securities. Good morning. I've got a few questions focused on Moose Jaw. To start with, I believe initially Moose Jaw, you were looking at a CapEx to EBITDA type multiple of 2 to 4. Just overall, I know it's early with the expansion. How is it trending? Yes. I think that was actually 1 to 3, Elias. I would say we're running right at that 22,000 barrels a day. I think that in when we turn the facility, we're going to turn the facility around again in March and going to install some minor equipment, which we believe will allow us to expand that some more. We don't know exactly how much right now. But we do believe there is some expansion opportunity with really some minor construction. And we're looking for other opportunities to continue to deploy those 1 to 3 time multiples in the facility. But these are relatively small capital projects, probably less than $10,000,000 Okay. Thank you. And thanks for that correction because I was going a little bit from memory. Again, focusing while now focusing on the increase in marketing guidance, would you attribute maybe half of that to Moose Jaw? I'm just trying to get a handle on the increase and once again the Moose Jaw impact or is that too aggressive of an estimate? Yes. I mean, I wouldn't look at it like we're not going to get that specific. I think as we looked at the marketing business, I think there's 2 things. One of them is a nomenclature or philosophical thing as we had put out the 60 to 80 at our January 18 Investor Day. As we noted in our prepared remarks, we really viewed that as being sort of a conservative downside number. What we discovered as we move through is people really were looking at as more of a P50 or an average number. And so, we definitely wanted to move that up because as we've said, certainly in meetings and on previous calls, our expectation was always that we would get at least that mid cycle number. As we think about what we are doing now, it's really twofold. 1 being, we did expand the Moose Jaw facility, which expands the earning potential to refine product side. But the second is just that our crude marketing business is different than it was previously. And as it's proven that it's just has a stronger ability to earn profits. So I wouldn't necessarily say it's 50% Moose Jaw, 50 percent crude marketing, because in any given quarter, it could be a different mix amongst the 2. So I think it's just more an overall view of the earning potential of that business and what we think we should be able to do over the long term. I'm showing no further questions in the queue at this time. I would like turn the call back over to management for any closing remarks. Well, thanks everyone for joining us for our Q3 conference call. Again, I would like to note that we have made certain supplementary information available on our website, gibsonenergy.com. Also, as we discussed, as in prior years, we'll be releasing our 2020 budget in early December. In the meantime, if you have any further questions, please reach out to us at investor. Relationsgibsonenergy.com. Thank you and have a great day. Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.