Good morning, ladies and gentlemen. Welcome to Gibson Energy's 2019 second quarter conference call. Please be advised that this call is being recorded. I'd now like to turn the meeting over to Mr. Mark Hitschkes, Vice President, Strategy, Planning, and Investor Relations. Mr. Hitschkes, please go ahead.
Thank you, operator. Good morning, thank you for joining us on this conference call discussing our second 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. 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 quarter with adjusted EBITDA from operations up 13% and distributable cash flow increasing 40% versus the second quarter of last year. In terms of headline numbers, adjusted EBITDA was CAD 112 million and distributable cash flow was CAD 80 million. I would note the EBITDA has been adjusted for a future environmental remediation provision recognized in the quarter. Looking more broadly than the financial results, we continue to execute our strategy. In April, we entered into an agreement to sell our Canadian truck transportation business. At the beginning of July, we closed the transaction. We have now finished our non-core disposition and completed our transformation into an oil-focused infrastructure company.
Today, we have five storage tanks or 2.5 million barrels of tankage under construction at Hardisty, and we are negotiating to contract additional tankage this year. We're working with our partner at the rail terminal, USD, to secure additional commercial support for our DRU project at Hardisty. With our existing infrastructure, connectivity and capacity to load more than three unit trains a day, we are uniquely positioned to provide a cost-effective solution for Canadian bitumen production. A DRU would improve egress out of the basin for the producer, and the neat bitumen has more value than the dilbit to the sophisticated U.S. refineries. An exciting opportunity, but we need to have the project fully underpinned by long-term contracts before we proceed. At the end of June, the Moose Jaw facility was expanded from 17,000 barrels a day to 22.
The project was completed ahead of schedule and below budget. Beyond increasing the capacity, we expect to realize higher margins on a per-barrel basis. The expansion included heat integration equipment that would require no additional heat for the additional throughput. Moose Jaw is a natural fit with the rest of our business. It provides us a strategic hedge in the case if pipelines are not built and helps fund our infrastructure growth. In the U.S., we expect Pyote East and the connection into Wink will be placed in service in late September, early October. This will be the first infrastructure asset Gibson Energy has ever built in the U.S. It's a big win for us, and it comes far sooner than we expected when we laid out our plans at the Investor Day in 2018. The U.S. team is currently pursuing several opportunities.
We're in numerous discussions on crude oil gathering front, mostly bunched in singles, but leveraging the assets we have in place. We're targeting that five to seven times EBITDA projects, and there's no need for us to reach. At Wink, we continue to have discussions with parties for tankage. It's still early, but we certainly believe there is the potential for Gibson Energy to build its first tankage in the U.S. within the next year or so. Returning to the topic of completing our transformation, becoming fully investment-grade reflects the quality of our business today. This is a major milestone for Gibson Energy, and Sean will discuss the impact in further detail. It speaks to our very strong financial position. Being investment-grade will help reduce our funding cost, improve our access to capital. Both these benefits improve our ability to grow distributable cash flow per share.
Looking to the balance of 2019, we are well positioned to keep our momentum going. All our capital projects under construction are proceeding quite well. They're on budget, and most of them are ahead of schedule. At the top of the hill, we have made strong progress on phase 3 tankage, and we now expect four of the five tanks under construction will be placed in service before the end of the year. On the commercial front in Canada, we have sanctioned new projects at both Hardisty and the Edmonton terminals. This has pushed up our sanctioned capital to the top of our range, as Sean will speak to in his remarks. The commercial team remains focused on developing and executing additional oil infrastructure opportunities.
We see the possibility for infrastructure capital in 2019 to approach that CAD 300 million target, and we are confident we will sanction at least CAD 200 million-300 million of capital in 2020. Before we conclude our remarks, let me quickly return to the future environmental provision recognized during the quarter. This is not something I would consider normal course or just part of operating a terminal. We place significant importance in our asset integrity and loss prevention at our facilities. On this issue, the samples collected show the product in question is a product we've never had at our terminal. As a result, we have filed a statement of claim against an adjacent operator to recover past and future damages to our property. We believe we have a strong legal position.
From an accounting perspective, once we quantify the future costs in filing the statement of claim, we were required to make the provision. This provision will reverse upon settlement of our claim. The potential cost will be incurred over many years. Gibson Energy is a top operator, and we pride ourselves in how we operate our terminals. The environment is very important to us, as are the communities that we operate in and around. In summary, this is another strong quarter from both an operational and financial perspective. We continue to execute. We are very focused on the delivery of capital projects. Our commercial teams north and south of the border are developing additional business opportunities. Our financial position is very strong. Leverage and payoff both remain well below target ranges. We are investment grade, and we will remain fully funded.
As I said on the last call, 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 very consistent infrastructure business were very much in line with our internal expectations, and we are pleasantly surprised by the performance from marketing. This has been a busy year so far. I am very glad to have all the dispositions closed, and I'm also very happy that the quality of our business and the strength of our balance sheet have now been recognized by both DBRS and S&P. Speaking to the financial results, adjusted EBITDA from combined operations of CAD 112 million in the quarter, excluding the remediation provision, was a CAD 10 million or 10% increase from the second quarter of 2018. On a more comparable basis, adjusted EBITDA from continuing operations, excluding the remediation provision of CAD 109 million in the quarter, was a CAD 12 million or 13% increase from the second quarter of 2018.
Distributable cash flow from combined operations of CAD 80 million was an increase of CAD 23 million or 40% over the second quarter of 2018. The main drivers of the increases over the second quarter of last year were as follows. Infrastructure segment profit, excluding the remediation provision, was up CAD 5 million as a result of new projects coming into service within Q1, such as the three tanks or 1.1 million barrels of storage at Hardisty, the Herc rail facility expansion, and the Viking pipeline. Marketing segment profit increased CAD 10 million due to higher margins earned from the crude marketing business. Offsetting this slightly, G&A was a bit higher. As you'll recall, we changed some of our allocations this year, but I would note that the salaries and benefits portion of G&A is down 18% in the first six months of this year relative to the same period last year.
On a distributable cash flow basis, in addition to the drivers I just discussed, we had a very small current tax recovery this quarter as a result of a cumulative benefit from the recognition of certain deductible items, resulting in a CAD 9 million increase relative to the comparable quarter last year. On a sequential basis, we very much anticipated a decrease in marketing segment profit. Differentials were much narrower, there wasn't the same level of volatility to drive opportunities for the crude oil business. That said, we still outperformed our expectations, which really speaks to the strength of our marketing organization. Contribution from infrastructure was down CAD 2 million quarter-over-quarter after adjusting for the remediation provision, which was very much in line with our internal expectations and the commentary provided on our last call.
Specifically, the first quarter benefited from two months of contribution from ES North, which did not qualify for discontinued operations treatment, and as such, appeared in our continuing operations in the first quarter. We 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 CAD 5 million decrease in Moose Jaw's contribution to infrastructure segment profit relative to the first quarter. This was only partially offset by billing for all three months at the Poplar Hill phase one, versus only one month in the first quarter. On a distributable cash flow basis, the second quarter was actually very close to the first quarter, decreasing by only CAD 3 million despite the much larger step down in marketing contribution.
This was a result of taxes, lease payments, G&A, and replacement capital all being lower in the second quarter than in the first. With another strong quarter, distributable cash flow from combined operations for the trailing 12 months increased to CAD 331 million, pushing down the payout ratio to 58% and even further below our 70%-80% target range. Debt to adjusted EBITDA increased slightly to 2.5 times, but remains well below our 3 to 3.5 times target and would've been in line with the first quarter if the proceeds from the trucking sale had been received two days earlier.
As discussed earlier, one item I am extremely excited to discuss is the investment-grade rating we received from S&P on July 24th. 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. Right now, we have CAD 900 million of term debt at 5.25% and 5.375%. With our second investment-grade credit rating, we will look to refinance that debt, starting with our CAD 300 million in notes due in 2022. We believe we can extend terms and bring down coupons substantially, potentially reducing our interest costs by as much as CAD 15 million-CAD 20 million per year once all the notes are refinanced.
That would really improve our EBITDA conversion into distributable cash flow as to make it in line or better than our peers and would represent greater than a 5% increase in distributable cash flow alone or half of our annual per share growth target. In terms of our outlook, let me speak first to marketing. With narrow differentials and the turnaround at Moose Jaw in the second quarter, we were very conservative with our expectations for this part of the business. Our bias will still be towards remaining conservative in our marketing outlook. For now, we will remain near our mid-cycle outlook of CAD 15 million-CAD 20 million with the expectation of at least CAD 20 million-CAD 30 million in adjusted EBITDA for marketing in the third quarter. There are certainly factors that could drive upside to that.
Specifically, with the Moose Jaw expansion coming into service, we'll realize greater profits within refined products. It gives us further confidence that our mid-cycle number is a low-end conservative range rather than a mean or a P50. One factor that keeps us fairly conservative on our marketing outlook in the near term is how differentials have been slow to widen to levels we believe that are required to incentivize additional rail, likely around a US $18-$20 per barrel range. For example, August looks to be less than US $12 per barrel. To the extent that differentials widen over the next few months, that would be upside to our outlook. If similar to the second quarter, we realize some opportunities that we did not have visibility to when we held our call, that would be another potential upside.
For the benefit of investors and analysts looking to model our cash flows, we have also refined our capital outlook for the year to be between CAD 230 million and CAD 280 million. Our outlook is based on sanctioned projects, and the increase is reflective of growth projects we have added from the start of the year. The increase would include the phase 4 tankage we sanctioned in March, as well as several inside the fence projects at our terminals. We have also decided to proceed on the foundations of the remaining two tank locations at Poplar Hill. While only a small portion of the total cost of a tank, this will allow us to take advantage of the ongoing work at Poplar Hill and maintain a schedule for delivery the second half of 2020.
We feel comfortable that our commercial team will be able to contract this tankage on a timely basis, which would underpin the remaining construction work. In summary, the second quarter was above our internal expectations. Infrastructure is right where we thought it would be. Marketing was able to beat our outlook with a strong second half of the quarter. Not something we count on, that extra cash flow will help further charge the balance sheet and fund infrastructure growth capital. Importantly, we continue to check all the boxes on our governing financial principles. We remain fully funded for all our sanctioned growth capital with payout and leverage well below target levels. We are now fully investment grade, which was one of our major goals.
We are in a strong financial 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 it up for questions.
Thank you. Ladies and gentlemen, at this time, if you have a question, please press the star, then the number one key on your touch-tone telephone. If your question has been answered or you wish to remove yourself from the queue, please press the pound key. To prevent any background noise, we ask that you please place your line on mute once your question has been stated. Our first question comes from Jeremy Tonet with JPMorgan. Please proceed.
Hi. Good morning. Just wanted to start off on the CapEx side of the equation, lifting the budget there a little bit. I was just wondering if you could provide a bit more detail as far as what were the drivers to accelerating it here, what type of conversations you're having with your customers, and what is their, I guess, drivers to sign up for this incremental storage that gives you the confidence as far as doing the prep work for the next round of expansion there?
I think there's two questions there. One is, what expanded our capital? Those were small pipeline projects internally at both Hardisty and Edmonton. At Edmonton, we're going to expand our rail additional 22 spots, and that's backed by one of the large refiners in the area. They'll be loading refined products under those facilities. At Hardisty, we have additional projects that are funded through throughput fees. Why did we move forward with the expansion or with the two rings? It was really a synergy opportunity. We built out that one tank that we announced earlier in the year. We had an opportunity that saved us a considerable amount of money if we moved forward and built those two rings. The one thing about those rings is they can sit there for 10 years
That investment is what we consider just a really sound investment, and we saved a considerable amount of money building the rings early. As far as talks, we continue to have talks, and we do believe that we'll be successful this year in contracting additional tankage. Until those documents are signed, it's not guaranteed.
That's helpful. Thanks. Maybe just pivoting to the U.S. side, when you're looking at the Wink opportunity, could you provide a bit more color there as far as how you feel that you're tracking towards actually bringing new storage into service? What capital have you deployed, or what customer conversations have you had so far to backstop new storage there?
The storage, that's something we're working on there. We definitely have the land. We have the 160 acres. We have a pipe coming up from our Pyote East system that's being connected in, and then we're laying out dual 16 inches, connecting into the facilities nearby. We continue to have discussions with parties there. If we contracted something, it would be later in the year or early next year. Those discussions have not proceeded as far as the discussions at Hardisty.
That's helpful. Thanks. The last one, if I could, just with Moose Jaw, the expansion there, could you just frame for us, I guess, the uplift that you could see in the marketing EBITDA versus what you were expecting before now that you have this new incremental capacity?
Well, uplift in marketing, it's just the 25% expansion. The marketing organization around Moose Jaw will have about 25% more profit. Addition to that is they actually pay the fuel cost, they'll see that savings in fuel, which is another probably CAD 1 million-CAD 2 million a year.
Jeremy, the only thing I'd add to that is, as you know, there is an ITP that the marketing business does play to the infrastructure business for operation maintenance and such of the facility. That's in the range of CAD 25 million, as you can see in our financials. Commensurate with the increase in capacity, you'll see an increase in that ITP. That'll show up in the infrastructure side. Any further increases, so assume that goes up by call it circa 25%. Any other increases that we would see would be reflected in that CAD 20-CAD 30 range that we provided for Q3 marketing.
That's helpful. That's it for me. Thanks.
Thank you.
Our next question comes from Robert Hope with Scotiabank. Please proceed.
Morning, everyone. First question's on Edmonton. With Trans Mountain inching forward and your available land there, have conversations on adding some storage in Edmonton to serve an expansion of Trans Mountain started yet, or will you need to see a little bit more progress there on the pipe?
We have our 30-inch mainline connection into Trans Mountain, and we're well connected to all the incoming pipelines. The customers, I think it's still a kind of a wait and see there, Rob.
Okay. That's fair. Then just in terms of the pre-construction activities at Hardisty, would those have occurred if you weren't well down the path on tankage discussions there, or are those indicative of kind of a confidence that you're seeing in your contracting discussions there? Could we see you pursue other pre-construction activities?
The first course was a significant cost savings. That's the reason we moved forward with it. We are confident that we will use these tank beds and contract these tank beds up within the next year, either this year or next year.
All right. Thank you.
Thank you. Our next question comes from Patrick Kenny with National Bank Financial. Please proceed.
Yeah. Morning, guys. Just on the marketing performance, wondering if you can confirm for us whether you've locked in some cheaper butane supply for your blending operations, at least until through next March, and if this might represent any upside to your previous marketing guidance of CAD 15 million-CAD 20 million per quarter, even assuming mid-cycle differentials going forward.
As far as contracting butane has been pretty beat up, especially early in the year. We did contract some up early in the year at attractive pricing. We still are in the spot market, though, on butane. We didn't go long on our butane purchases. We're still in the spot market, but that has been part of the benefit of that CAD 20 million to CAD 30 million.
Okay.
Maybe I'll add to the mid-cycle. The question on the marketing performance specifically, as you heard on the call, our expectation for Q3 is CAD 20 million-CAD 30 million in performance. We certainly are not going to move off of having mid-cycle be our sort of expectation or what we would ask people to model in beyond that. Just to give a bit more clarity, though, as we sit here today, if we were to provide guidance or an expectation to the fourth quarter, it probably would be closer to where we are in the third quarter, certainly. Just given some of the factors. Think of that being somewhere in the range of CAD 10 million a month, or probably that CAD 20-CAD 30.
We're not in a position to provide that as we sit here today, but as we look through to the fourth quarter, we don't see things changing materially off the third quarter, certainly.
Got it. Thanks for that. Just at the Hardisty facility, with activity ramping up towards the three-unit trains per day, and given continued delay in additional pipeline egress out of Hardisty, do you get the sense that customers are finally getting more serious about building some DRU infrastructure? If so, any color you could provide on potential size, cost, lead time would be helpful. Thanks.
Last year at this time, there was no real discussions with very many parties on the DRU. We are in active discussions now with parties, both producers and refiners. We see that on a really long-term benefit on the refining side, especially down in the U.S. where they can get that neat dilbit or the neat bitumen that doesn't have the 30% condensate injected in it. The U.S. are pretty long C5. WTI is trading around 80% or less than 80% of WTI. The U.S. production continues to grow in that C5 production, along with all of the really light crude that's being produced in the U.S. The U.S. refineries are flush with the lighter product, and that neat bitumen gives them the capacity to keep their refineries running at full capacity. As far as size, we think we have a competitive advantage capital-wise.
We won't really state that right now, but we do believe we have a competitive advantage in capital because of our storage tanks, because of the three-unit train, because of the pipeline property that we own. We think we have a considerable competitive advantage over most other players.
Thanks for that, Steve. Just to confirm, would that infrastructure be 100% Gibson-owned, or would it have to fall within the JV with USD?
Yeah. I've never said it was going to be 100%, but I've always said that if we move forward with the DRU, it'll be with our partner, USD.
Yeah. Okay, perfect.
Just on that one, if you listened to USD's call yesterday, they did provide some specifics. If anything, probably a bit more descriptive on their calls, but they did talk about a facility in a range of 100,000 barrels a day. On their call, they said they expected it to take somewhere in the range of 28 months to build. I'd encourage you to go look at their call as well.
Perfect
given these prepared remarks.
Great. Last one here for yourself, Sean. Just wondering if you could provide a bit more color around the timing of refinancing the notes. Just wondering if the math goes around right now for both the 2022s and 2024s, or do you need to wait a little bit for the callable terms to step down over the next couple of years?
Yeah. No. Thanks. The next call period or the last call period for the 2022s was July of this year. The first call period for the 2024s would be July of next year. It's fairly obvious that it's economic to refi those 2022s in the relative near term. You could expect that would be our plan, given where the call price is there, given its near term to maturity. It's extremely NPV positive to do that today, especially with those notes being 5 3/8. You're seeing triple B low credits getting financed on a 10-year basis in the last day or two, even at prices less than 3.5. The 2024s, if we are to refi them today, it's probably in around NPV neutral. That's something we'll continue to monitor, certainly.
At a minimum, I would expect that we would refi those at the next call period, which is July of 2020, where the cost to refi them goes down by about a half and the NPV of that trade goes up significantly. The other consideration for us as we think about it is just the pure capacity for us as a first-time issuer in the investment-grade market. I think doing a CAD 900 million offering in one swoop as our inaugural offering would be a rather large ticket right now. In short answer, expect the 2022s relatively soon. 2024s, we'll likely wait until July 2020, but we'll continue to monitor what the market does.
That is excellent. Thanks, guys.
You bet.
Our next question comes from Linda Ezergailis with TD Securities. Please proceed.
Thank you. Just a follow-up on your marketing. I don't want to belabor it, but how are you thinking of layering on hedges opportunistically, and do you see any liquidity out there, or are you just focusing more on your short-term opportunities there?
If the opportunity does present itself, we do hedge some of the margin at Moose Jaw. We don't have any significant hedges on right now for the Moose Jaw itself. If the opportunity would present itself, we would put on hedges.
Okay. That's helpful context. Thank you. Any activity in the U.S.? There was some mention that some of your volumes there went up, but I'm assuming it's still relatively modest.
Yeah, there's nothing significant going on in the U.S. right now besides the construction itself, which we're very excited about. On any marketing activity or anything like that, there's nothing drastically different than what we've done in the past. I think we've increased our lease purchases out there to 30,000 barrels a day. That's still relatively insignificant.
Okay. That's helpful context. Thank you. Maybe you can comment on the Enbridge open season for their mainline. How might Gibson be participating either to secure capacity for your Moose Jaw facility or how your marketing operations might choose to participate in that, if at all?
Yeah. We're definitely reviewing that. Protecting Moose Jaw is very important to us. Downstream marketing on Enbridge, we've never been a real big shipper on Enbridge, that's not a giant opportunity for us, we will review that opportunity. Protecting Moose Jaw's earnings is extremely important to us.
Thank you.
Thank you. Our next question comes from Robert Catellier with CIBC Capital Markets. Please proceed.
Hey, good morning, guys. I just have one question left. I did notice the marketing volumes were pretty strong. I thought maybe that was related to the U.S., but judging by your answer to the last question, it's probably coming from somewhere else. Can you provide a little bit more color on that, particularly with respect to sustainability?
You look at marketing margins. They're driven by Moose Jaw itself, which we'll see that expansion coming on in third and fourth quarter. We'll see marketing margins from the refined products business move up. We did talk about the potential for blending butane. That's still strong through the second and third quarter, and fourth quarter, we see the butane market still being depressed. Other activities are just marketing activities in and around our terminal at Hardisty in Edmonton.
Yeah. I think the question was specific a bit to volumes as well. What I would say, Rob, is you'll notice that we did have a decent increase in volumes, and this goes to the structure of our business as well, where it's not all that volumetric dependent. If you looked into the details behind the numbers, you would've seen a decent size jump in volumes, certainly at our terminals, where that was underpinned by take-or-pay contracts. Even when the volume was somewhat lower last year, we were still getting paid for it. I would say, the increase in volume is not something that I would view as being either a risk or necessarily an opportunity, just given the contractual nature of our infrastructure assets.
Okay, thank you. That was the color I was looking for. Thanks.
Thank you. Our next question comes from Ben Pham with BMO Capital Markets. Please proceed.
Hi. Thanks. Good morning. I wanted to check your target of two to four tanks sanctioned, per annum. I think that's more kind of a high level way as you think about your growth. I guess you've always suggested Poplar Hill is the next potential growth target. I was just reading through, thinking about your comments. Are you thinking more maybe you won't hit the two tanks this year, but you start to see a bit of a lumpy pickup in 2020?
We've contracted one already this year.
Yep.
We're pretty confident that we'll contract another two this year.
No change there then. Just wasn't sure about your comment around Poplar Hill being maybe into next year on sanctioning.
Yeah. There's other places we can build tankage, though.
Okay. All right. Got it. Okay. Then on some of the questions around some pre-work that's being done, foundations. Would you guys ever build storage on contract at first in the front end, pick up a higher toll, and then you get some visibility on securing that ultimately, that you'd move ahead with the merchant first?
We haven't done that. That'd be something that we would need to discuss with the board before we would do anything like that. That's nothing that we have actually discussed with the board, so.
Okay. All right. The second topic, I wanted to dig in this provision that you made, and I wanted to clarify. In no way does this impact your tank operations? Is this just simply just cost removing these samples that you found?
All I can say is just really what I said in my prepared remarks. From advice from counsel, we're not gonna really talk more about that issue. Thank you for the question.
It doesn't impact the operation of the facility, though. The indirect answer to your question.
Okay. All right. All right. Thanks very much.
Thank you. Our next question comes from Andrew Kuske with Credit Suisse. Please proceed.
Thank you. Good morning. I think the question's for Sean, and I appreciate the color on your expectations on where you could place debt into the market with the investment grade. I guess the question really is, clearly there's a financial benefit from lower interest rate costs, but are there other benefits that you get just from a counterparty standpoint as far as some of your operating agreements, and just the contracts you have? Has it become easier to negotiate with people now that you've got the investment grade versus where you were before?
It's really a commercial question. Absolutely. We would've viewed ourselves as being at least a pseudo investment-grade credit profile previously. For things such as posting LCs and credit that people will provide us for open credit, clearly as an investment-grade entity, that improves relatively materially because similar to bond pricing, it's sort of a formulaic thing where there's a step change as you move from sub-investment-grade to investment-grade. Absolutely, there are benefits on the commercial side as well, with respect to open credit we get and requirements to post LCs.
Okay. That's helpful. If we just think about this a little bit differently, and if you thought about having the investment grade and then maybe sourcing alternative capital, whether it be private equity to accelerate expansions, is that something you anticipate being easier should you go that route?
We didn't talk about it in our prepared remarks, another big benefit of getting investment grade is not just access to a much lower coupon and longer tenor. Another is access to hybrid sources of capital. To be abundantly clear here, part of our strategy is to be fully funded with the distributable cash flow or internally generated cash flow we have and our current capital plans, including the increase we spoke to today, we remain fully funded. What that means is we don't need any other external sources of capital. To the extent that we had a customer come to us and say they want an additional 10 tanks, and it took us above that fully funded status. One of the real benefits to investment grade is access to either the hybrid or preferred market, which are two non-dilutive leverage neutral sources of capital.
I would think of that as being the real benefit as opposed to being some step change with respect to private equity sourcing, helping us source some of our capital. At the end of the day, I would expect that anything private equity would provide would be much more expensive than what we could do in either the term debt or the hybrid debt markets.
That's great. Thank you.
Thank you. Our next question comes from Robert Kwan with RBC Capital Markets. Please proceed.
Good morning. I think you were generally in prior comments leaning this way, but you used the words say from Moose Jaw, natural fit in the hedge or the physical hedge it provides you. In terms of looking at your business and stabilizing it, is Moose Jaw very much core to the business going forward?
We've discussed that with the board, and we believe Moose Jaw is core to us on a go-forward basis.
Okay, got it. Moving to the DRU. I'm just wondering, what are the plans, at least as it's on the drawing board right now, to get the condensate back into the third-party systems?
State that again.
Sorry. Just on the DRU. What's the plan to get the condensate back into the third-party systems to be recycled?
It really depends on the size, right? The current size, we don't really need to get it into third-party systems. We can use it there at Hardisty with our additional customers. We don't need to get it into the pipeline. If we expand it further, still we'll need to connect into condensate pipelines headed to port.
Got it. I think it was 100,000 barrels a day dilbit in, 70,000 out. You could use the 30,000 then of condensate just to blend in to your activities in Hardisty.
That can be used at the Hardisty area, in Hardisty.
Got it. Okay. Maybe just last then coming back to marketing. Are you able to be a little bit more specific about what happened in June? Because it didn't look like there was a lot of vol in the month-ahead market. What types of things happened in June to drive the big quarter?
It really wasn't a June thing, Robert. It was pretty consistent all three months. I didn't see a big jump in June that caused the earnings stream. It was pretty consistent across all three months.
Okay. By the time you held your call, didn't you have two months in the bag, given the month-ahead nature?
Yeah, we didn't have quite two months in the bag. What I would have said we had the and it's similar to visibility we have right now. We had the first month in the bag. We had what we thought was relatively good visibility in the second month. We had less visibility in the third month. That second half or that second month materialized stronger than we expected. June materialized stronger than we expected both. Really the outperformance there was primarily in the crude marketing business. It wasn't specific to one specific optimization strategy or one specific thing they do. It was just in general, stronger almost across the board within that crude marketing business. As you know, Moose Jaw was down in the second quarter.
That really, if anything, Moose Jaw would have been slightly below budget as we thought about it, vis-a-vis sort of what we talked about. We expected that in the quarter, but if you look at our budget at the beginning of the year. It really was in the crude marketing business.
Got it. Was it less than about kind of locked-in activities where you were seeing things in that month ahead and maybe were there just more kind of spot opportunities where you were seeing dislocations?
Spot opportunities, majority.
Yep.
Okay. That's great. Thank you very much.
Thank you. Our next question comes from Elias Phoskolos with Industrial Alliance. Please proceed.
Good morning.
I've got a couple questions. First one's related to CapEx for 2020. I believe I heard you were talking about two to CAD 300 million for CapEx, or did I mishear that?
Nope, that's correct. In Steve's prepared remarks, he said he would expect that our CapEx will be somewhere in the range of CAD 2-CAD 300. We haven't formally come out with that. That's just based on sort of what we see from commercial discussions today and what we've sanctioned to date.
Okay, is there any color that you can add onto that? I appreciate if you can't, it's just a little higher than I would've expected at this point.
No, I don't think we're in a position to provide color above that right now. Again, Steve talked about in his remarks, we remain confident in two to four tanks a year. He mentioned the possibility of something like a DRU, and also mentioned that on the U.S. side, commercial discussions were advancing well. We'll come out with formal guidance at the tail end of the year, as we do every year, and we'll provide more granularity at that time. The comment on the two to 300 is not formal guidance. It's just based on what we're seeing today, that would be our expectation.
Okay, great. The last thing is maintenance capital. That was a little lower than I would've expected. Would that be sort of a below average run rate or could you add some color onto what that might be like? The reason I'm focusing on that is distributable cash flow.
Our estimates on maintenance capital were CAD 25 million-CAD 30 million in the year. Maintenance capital is a lumpy thing. It doesn't happen perfectly through the year. We still expect to spend that CAD 25 million-CAD 30 million in a year.
Okay. That's it for me. I'll turn it back. Thank you very much.
Thank you. This concludes our Q&A session for today. I'd like to turn the call back over to Mark Hitschkes for closing remarks.
Thank you. Thank you everyone for joining us for our 2019 second quarter conference call. Again, I would like to note that we have made available certain supplementary information on our website, gibsonenergy.com. If you have any further questions, please reach out to us at investor.relations@gibsonenergy.com. Thank you, and have a great day.