Good 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 Chyc-Cies, Vice President, 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 third 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. Thank you for joining us today. We delivered another strong, consistent quarter with EBITDA of CAD 121 million or CAD 110 million on a comparable basis after adjusting for a one-time change in pension liability and another strong quarter in distributable cash flow of CAD 72 million. Our infrastructure continues to grow, reaching CAD 82 million in the quarter, an 8% increase from the same quarter last year. CAD 73 million of that came from our terminals and pipelines business. Marketing had another strong quarter with CAD 37 million in adjusted EBITDA. We continue to focus on delivering and advancing our strategy throughout each quarter. That means securing CAD 200 million-CAD 300 million 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 million barrels of storage into service at the top of the hill in November. The project is on budget with the big win in accelerating the schedule. Two 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. Commercially, we continue to progress additional tankage agreements and expect to announce additional tankage before the year ends. Based on our existing discussions with potential tank customers, we remain confident in our ability to grow at that two to four tank run rate for the next few years. This will allow us to invest CAD 100 million-CAD 200 million 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 a 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 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 first quarter 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 two years ago. Two weeks ago, we placed the Pyote East Pipeline in service, and we are now transporting crude oil into Wink. 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 Pyote. 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 bumps 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 5x to 7x EBITDA projects. We see many different opportunities to deploy CAD 50 million to CAD 100 million 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 CAD 200 million-CAD 300 million 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. 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 first investment-grade credit rating from DBRS. More recently, S&P upgraded their 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. 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. 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. That is with 10 years of tenor 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 CAD 60 million from IPO, CAD 30 million from 2015, and over CAD 15 million from 2017. On an actual year-over-year comparison, upon refinancing our 2024 notes, we will have saved CAD 15 million-CAD 20 million 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 CAD 121 million in the quarter. Adjusting for the CAD 11 million we booked related to an amendment to one of our legacy pension plans, the resulting CAD 110 million is more comparable to other quarters and more indicative of the business going forward. The CAD 110 million would be a CAD 37 million decrease from the third quarter of 2018. Of that, CAD 33 million would be a decrease in marketing EBITDA, where marketing segment profit decreased by CAD 17 million. This quarter, we had a CAD 12 million unrealized gain on financial instruments, whereas we had a CAD 4 million unrealized loss in the third quarter of last year, accounting for an additional CAD 16 million difference in comparable adjusted EBITDA. Distributable cash flow from combined operations of CAD 72 million was a decrease of CAD 13 million relative to the third quarter of 2018.
Again, marketing was the largest driver of the change, although higher current taxes in the third quarter of last year as a result of the higher marketing earnings made the gap narrower on a distributable cash flow basis than on a comparable adjusted EBITDA basis. Other notable changes relative to the third quarter of last year were as follows: infrastructure segment profit was up CAD 6 million on a continuing basis as a result of new projects coming into service over the last 12 months. Including the three tanks at Hardisty or 1.1 million barrels of storage, the HURC rail facility expansion, and the Viking Pipeline. With the expansion of the Moose Jaw facility, the ITP that refined products within marketing-paced infrastructure was also increased starting in the third quarter of 2019.
Also this quarter, reported G&A was a gain of CAD 3 million, a result of the pension adjustment I spoke to earlier. Absent this gain, G&A would have been CAD 8 million and in line with the third quarter of last year. Interest expenses and finance leases were slightly higher in the third quarter of last year, and replacement capital was the same this quarter and last year. On a sequential basis, we very much anticipated a decrease in marketing segment profit as differentials remained narrow and volatility, which often drives opportunity for the crude oil business, was somewhat modest. That said, we outperformed our expectations with marketing CAD 12 million higher in the third quarter than in the second quarter on a segment profit basis, though very similar when adjusting out unrealized gains or losses.
The contribution from infrastructure was up CAD 10 million quarter-over-quarter after adjusting for the remediation provision last quarter. Specifically, the second quarter 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 CAD 5 million decrease in Moose Jaw's contribution relative to run rate in the other three quarters of the year. Upon re-entering 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. We saw a small increase in the HURC rail facility and on our throughput at our terminals. On a distributable capital basis, the third quarter was below the second quarter, with an CAD 8 million increase in current tax being equal to the decrease.
With this quarter added and rolling off a very strong third quarter in 2018, distributable cash flow from combined operations for the trailing 12 months is now at CAD 318 million, resulting in a payout ratio of 60%, which is well below our 70%-80% target range. Debt to adjusted EBITDA remained relatively constant at 2.6 x and remains well below our 3x to 3.5 x target. Given that marketing in the fourth quarter of 2018 had its best quarter since IPO at CAD 82 million in segment profit, we expect that both our payout and leverage to increase slightly. 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 4x and payout ratio being less than 100% on an infrastructure-only basis.
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 a P50 or average estimate, where we would 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 is 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 has in place. As a result, we're going to adjust our long-term run rate to be between CAD 80 million-CAD 120 million per year or CAD 20 million-CAD 30 million per quarter. In the fourth quarter, 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 product being brought in into the North American market. Also, on the distillate side, as a result of noticeably lower joint demand in Canada, we have focused our sales in the U.S., where we realize a bit lower margins, in part due to higher transfer costs. In summary, the third quarter 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 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.
As a reminder, to ask a question, you will need to press star one on your telephone. To withdraw your question, please press the pound key. Please stand by while we compile the Q&A roster. Our first question comes from Robert Hope with Scotiabank.
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 two 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. The tankage negotiations that we have going on currently are well advanced with two parties. One would help build those two 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 million barrels-2 million barrels. As I've said in the past, when we're building out a platform, those final tankage are in that 5x EBITDA range.
All right.
Yes. Thank you, Rob.
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 neatbit or new pipelines coming onto service? Just want to get a better sense of that opportunity.
Yeah. 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 in that not only are the DRUs involved, rail loading at our facility is involved, long-term rail contracts, and then the unloading facility, and then the access to the market. There's probably 13 different agreements that have to be executed to actually make this happen. These are very complex transactions, and we're well down the road. I can't stress how complex each contract really is.
All right. Appreciate the color. I'll hop back in the queue. Thank you.
Thank you. Our next question comes from Robert Catellier with CIBC Capital Markets.
Just a couple 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.
We haven't had a lot of time to digest that, neither have the customers. We had heard that this may happen. Obviously, this is a big positive for us at Hardisty and at Edmonton, and our rail terminals at Edmonton and at Hardisty. I think it does give us an opportunity. I know that we are expanding to three and a half unit trains a day there at Hardisty. We'll look to potentially push that another half a unit train potentially, 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. When you think about our assets at Hardisty, generally our customers are really the large integrated upstream oil sands producers. They use our assets as operating storage as they launch down into the U.S., either on the egress pipelines or through our rail terminal. When you look at the tankage that we're looking to build in the U.S., it is the producers, but generally, it's more the long-haul shippers on the pipelines. In the U.S., there at Wink, you've got numerous pipelines being built into Wink and out of the Wink area, and there's an extreme excess of pipeline capacity. 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.
The people that we're talking to generally are those long-haul shippers that want access to supply and want access to multiple markets. The contracts around that are in the five years. The one thing we are seeing is a five times type of EBITDA builds around there to get at least our payback in the first five years.
Okay. It's sort of similar to the pipeline. It's just a different market, different contract structure?
Yes. They're definitely take-or-pay lease agreement, like all storage. The storage is not overbuilt. What we believe is overbuilt is really that pipeline capacity right now. There's a giant sucking sound in that area for supply.
My last question is on your tank outlook for two to four tanks. That hasn't changed in a while. I'm wondering what you're assuming in there for IMO 2020, or if you view that 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 DRU conversation and some of the questions. I guess you characterized it as advanced discussions with one counterparty. Just wondering, how do you guys think about your strategy around the contracting on DRU? Do you expect 100% contracts per sanctioning? Is it correct to think that you've already kind of ironed out the towing fee and the ratio, and now it's really just board approvals and all these 13 different contracts that you got to deal with?
Thanks, Ben. It's Sean here. A couple questions there, but what I would say is it will be backstopped by 100%. 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&A, there's a number of different contracts here. The negotiations are very live, I think as he said, quite advanced. We remain very optimistic, but we're not going to characterize exactly where that stands in the negotiations vis-a-vis, is it just waiting for standard approval at the board versus how much is left to be done. 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.
This is long-term contracts. This is that 10-year type of contracts for these type of assets.
It's just consistent with just kind of how you think about tankage. Maybe just when you think about just your unlevered balance sheet, marketing numbers moving higher, I guess, you could potentially self-fund this DRU project. Can you comment on that? How does dividend growth kind of fit in as you add 2 million tanks in November?
Yep. Again, two 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 at a CAD 250 circa amount of capital. We're right now finalizing our capital plan for 2020. As you would've seen in our press release, in Steve's quote, he commented on being very confident of CAD 200-CAD 300. As always, we'll come out with our capital in December. 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 nothing has changed there from a messaging perspective or a 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 5x to 7x multiple with long-term contracts with high-quality investment-grade counterparties. If we have an ability to deploy capital there, we think that's the best return to shareholders. To the extent that we have excess capital above that, and it's from the tankage side, as you allude to, we would be biased towards a modest dividend increase. 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 from the marketing business and above growth capital opportunities, we'd bias a share buyback in that event.
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 JP Morgan.
Hi, good morning. Just wanted 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 a good color there, appreciate that, but was just wondering if you could kind of walk us through maybe one or two examples of what has materialized to be better than what you originally expected when you laid out the guidance before.
When we laid out our guidance before, we have an earnings stream that we track on a daily basis out of our marketing organization. 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 two months of the quarter that we were not anticipating. Since that time, those opportunities have faded away. Other opportunities, such as the wider spread between WCS and WTI, have emerged. Things change really on a monthly basis when it comes to what drives that marketing organization. What a good organization does is makes money in really all environments. I think our team's starting to get more consistent at 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? I'd be interested in that context.
Any volatility in a marketing organization creates opportunities. The Keystone going up, Keystone coming back on, all of that is volatility that gives them opportunity to either lose money or make money in the market. We have a very disciplined organization, and so we hope that the opportunities will materialize. Some additional opportunities will materialize in December, other opportunities that we've counted on throughout the year have faded away.
Okay, 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. 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 partner, JV partner? Would it be the same level of ownership in all pieces of it? Maybe comment on if there's any sort of logistical considerations as well that need to be worked through on the site itself or some more details on the design aspects, if there's any considerations on or complexities on that front.
Thanks, Linda. I'll start this, certainly. It's basically 50/50 split with USD at the DRU. We would be equal partners there to the extent that there's anything required within our fence line, that 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. 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.
You got to think of inside the fence and outside the fence. Inside the fence would be the DRU itself, 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 2/3 outside the fence, 1/3 inside the fence. Everything outside the fence, we very much understand. 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. Is it reasonable to say that, beyond just kind of figuring out your inside the fence, and that turnkey contract, you're really just working through processes and maybe some of the commercial details are really what is taking the most time?
There 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. This is not an issue. Probably the complexity really is, I listed the 13 potential agreements. How do they interact? How do they act with each other? Not the individual agreements themselves. It's really how do 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 that you've got now and your access to debt markets and the cash that you're sitting on, you've got a bunch of optionality. 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?
Thanks. Nothing has changed. I'd say, we don't have nearly as much cash in the balance sheet because post the quarter, we did pay down our 2022 notes. That sort of CAD 345 odd we had, it was just parked there given the 30-day call period. 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 5x-7x build multiple, backstop by long-term contracts with high-quality counterparties. The quality of cash flow is absolutely important to us. 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. Our view on M&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&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. That allows us to be extremely disciplined as we think about M&A. 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. 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 CAD 500 million , CAD 1.5 billion That kind of ballpark, that you have good line of sight on at this stage?
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 CAD 100 million-CAD 150 million per year, on the tankage side or in around the tankage, CAD 50 million-CAD 100 million in the U.S., CAD 50 million outside the fence. 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, CAD 200 million-CAD 300 million. To the extent that the two to four tanks continue to materialize, which we very much still think it will, you can move that capital forecast forward for however many years you want to. 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. 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, the view hasn't really changed. We'd like tankage to be backstopped by long-term contracts before sanctioning it. We've talked about it previously. The one instance where we would consider that would be if there's material synergies from building more than one tank or multiple tanks at once. To the extent that if you think of sort of up at the top of the hill or a new zone, if we have one or multiple tanks backstopped and building further tanks or a further tank in conjunction with that results in material cost savings and doing it at the same time, that is something that we would consider. I think overall, our philosophy hasn't changed where we'd look to have tanks sanctioned prior to building.
Got it. On the dividend, you'd mentioned if marketing exceeded the range, you'd probably look to share buybacks first. I'm also wondering, with leverage well below 4x , is there a low end where you can really think about taking the interest savings from the de-levering that you've had to date and then deliver that as dividend growth?
That is 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. 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've been multiples of what it is now, just given the nature of our business. I don't think you can focus specifically on the interest savings. We did exit and have been in around that 2.5 x, certainly from tail end of 2018 through to now. The real question is, what does the funding plan look like as we move forward?
The other part is, as you think about that two and a half times, we still do have our target of being four times or less on an infrastructure-only basis. Notwithstanding the fact that we're two and a half, which is well below our targeted range, we are right in around that four times. As we sit here today on an infrastructure-only basis. With respect to the dividend 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. Maybe I can just finish with a follow-up here on just as philosophically how management team thinks about the dividend. If you start growing the dividend, is philosophically what you want to do regular annual increases, or 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.
Good morning, guys. Appreciate all the color on the CAD 80 million-CAD 120 million 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 represents a bit of upside to the top end of that range, but just curious if the CAD 80 million-CAD 120 million was pegged to any differential environment?
I mean, this year has been We've seen, obviously, changes throughout the year where we've traded at a minus CAD 11 million for numerous months, until just recently where we've seen it go up to minus CAD 20 million. The marketing team's 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. 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 are specialty-type products. 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 million-$ 26 million forward-month spreads even though you were trading at minus CAD 11 million. You had third and fourth quarters trading at $ 20 million-$2 4 million. 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 CAD 11 million.
Okay, thanks for that. 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 think philosophically, we'd look at it 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. If looking to build into your model, sort of the guidance I would give is sort of increase your cash taxes commensurate with the increase in marketing guidance.
Got it. Okay. Last cleanup question here. Just was curious if there was any update on the $15 million provision at Hardisty or any update on the statement of claim there?
No, that's going to be a long term. 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 as far as potentially to keep that contained. Of course, we are trying to recover those costs, but we do think that'll be a very long process.
All right. Thank you.
Thank you. Our next question will come from Ian Gillies with GMP.
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?
Yeah. 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. We had never put out the 28 months specifically. Yeah, overall, I think we think of the build time as being circa 18 months. Think of mid-2021, in that range, COD, if this progressed prior to the end of the year.
Okay.
As we're in these negotiations, that's not impacting really our ultimate timeline right now because where we are in the process, we have backstops in place to continue to develop the opportunity.
Okay. 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?
Yeah. 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 or 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, it's trending, I guess, towards low end of guidance this year. Should we be expecting any sort of catch-up in Q4? What sort of run rate should we be thinking about there?
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 Moose Jaw and tank turnarounds that we have. Guidance is in the sort of circa 20-25 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, I expect the guidance for next year will probably be very similar to this year, in the 20-25 range.
Got it. Thanks very much. I'll turn it back over.
Thank you. 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 2x to 4x. Just overall, I know it's early with the expansion, how is it trending?
Yeah, I think that was actually one to three, Elias. I would say we're running right at that 22,000 barrels a day. I think that when we turn the facility, we're going to turn the facility around again in March, and we're 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. We're looking for other opportunities to continue to deploy those one to three time multiples in the facility. These are relatively small capital projects, probably less than $10 million.
Thank you, and thanks for that correction, because I was going a little bit from memory. Now focusing on the increase in marketing guidance, would you attribute maybe half of that to Moose Jaw? I am just trying to get a handle on the increase and once again, the Moose Jaw impact, or is that too aggressive of an estimate?
We're not going to get that specific. I think as we looked at the marketing business, I think there's two things. One of them is a nomenclature or philosophical thing, as we had put out the 60 to 80 at our January 2018 Investor Day. We noted in our prepared remarks, we really viewed that as being sort of a conservative downside number. We discovered as we moved through is people really were looking at that as more of a P50 or an average number. We definitely wanted to move that up because as we've said, sort of certainly in meetings and on previous calls, our expectation was always that we would get at least that mid-cycle number. We think about what we are doing now, it's really twofold.
We did expand the Moose Jaw facility, which expands the earning potential of the refined product side. The second is just that our crude marketing business is different than it was previously, and has it proven that it just has a stronger ability to earn profits. I wouldn't necessarily say it's 50% Moose Jaw, 50% crude marketing, because in any given quarter, it could be a different mix amongst the two. 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.
Okay. I appreciate that color. I guess I'll leave it at that. Thank you.
Thank you. I'm showing no further questions in the queue at this time. I would like to turn the call back over to management for any closing remarks.
Well, thanks everyone for joining us for our third quarter 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.relations@gibsonenergy.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.