Ladies and gentlemen, thank you for standing by, and welcome to the Tidewater Midstream and Infrastructure Limited second quarter 2020 results conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star zero. I would now like to turn the conference over to your speaker today, Joel Vorra, Chief Financial Officer. Thank you. Please go ahead, sir.
Thanks, Chris. Welcome everybody to Tidewater's second quarter 2020 conference call. On the call with me today is Joel MacLeod, Tidewater's President and CEO. Before passing the call over to Joel, as usual, for a review of the quarterly highlights, I'd like to remind you that some of the comments made today are forward-looking in nature based on our expectations, estimates, judgments, and projections. Forward-looking statements we may express today are subject to risks and uncertainties, and actual results may differ from expectations. Further, some of the information today refers to non-GAAP measures. To know more about these forward-looking statements and non-GAAP measures, you can refer to our various financial reports, which are all available at tidewatermidstream.com or on SEDAR. With that, I'll pass it over to Joel MacLeod for a review of the quarterly highlights.
Thanks, Joel. Good morning, everyone, thank you for joining our Q2 2020 conference call. Since our last conference call in mid-May, we are pleased to say that we have seen a material improvement in our business and we are nearing pre-COVID cash flow levels. Our Q2 was in line where we delivered a record quarter with CAD 41.9 million of Adjusted EBITDA and an over 90% increase year-over-year on a per share basis. We see a strong second half of the year where we are reiterating guidance of CAD 175 million-CAD 185 million of EBITDA. Our number one priority remains de-leveraging and free cash flow generation, We are confident in our ability to achieve our target of 3 to 3.5 times debt to EBITDA with the closing of the Pioneer Pipeline sale.
We remain impressed by the resiliency of our business through COVID, and this is a result of the location and contracted nature of our assets, with over 70% of our EBITDA coming from long-term agreements and approximately 50% of our EBITDA from investment-grade counterparties. Over the past three months, we have seen three of our largest customers all access capital and again, wish to thank our customers for their support. We congratulate the Kelt team on their sale of their Inga Fireweed property and will eliminate all debt and they will be sitting on cash. Further, we saw Pipestone Energy, one of our other large customers, access CAD 70 million of convertible preferred equity and accelerate their capital program, and wish to congratulate them. Last, we saw our largest customer in Husky access CAD 1.25 billion of debt at an impressive 3.8% interest rate.
Great to see three of our largest customers strengthen their balance sheets. Our business, although not untouched, has remained resilient and to only have an impact of 10%-20% to our business has been an impressive accomplishment. We are not aware of another infrastructure company in Canada that delivered Adjusted EBITDA per share growth of over 90% year-over-year in what is likely to be one of the toughest quarters of our generation. It is important to also note that we will be one of the only companies that is a leader on the recovery, and we have seen demand in diesel and gasoline increase dramatically in the past 60 days and demand is currently outpacing production at Prince George, where throughput is currently over 12,000 barrels a day after several successful debottlenecking projects.
We are likely to continue to see significant government stimulus and intensive infrastructure capital deployment period over the next 12 to 24 months, and Tidewater is positioned very well to take advantage of this. This includes some of the largest capital projects in Canada and even North America in and around Prince George, including Site C Dam, Coastal GasLink, LNG Canada, and the Trans Mountain Pipeline, all of which are multi-billion dollar projects. We have seen a significant activity ramp on Coastal GasLink, which runs just north of Prince George. Further, the activity around the Montney over the past three months has been significant, with Conoco stepping in and paying over CAD 500 million for Kelt's Inga Fireweed property, and more recently, CNRL purchasing Painted Pony in the B.C. Montney. This further validates the prime location of our assets and infrastructure, including our Prince George Refinery and related tankage and infrastructure.
To see several refineries across North America and the world realize negative margins in Q2 while our margin at Prince George has held above CAD 44 a barrel also emphasizes the strategic nature of our assets and infrastructure. To see the Marathon Martinez Refinery in California announce closing later this year and yesterday to see the Phillips 66 Rodeo Refinery announce conversion to renewable diesel are both very positive for Prince George as diesel and gasoline production on the West Coast will be reduced significantly and Prince George remains advantaged with our Canadian crude supply. We continue to forecast an increase in Adjusted EBITDA of approximately 80% from 2019 to 2020 and are one of only a very few companies that have 80% of per-share EBITDA growth from 2019 to 2020. We do expect to continue to deliver material, debt-adjusted, per-share EBITDA growth into 2021.
Counterparty risk continues to be a focus of the market. I want to reiterate that 50% of our EBITDA is from investment-grade counterparties, with Husky being our largest customer on the five-year offtake at Prince George. As previously mentioned, to see our three largest customers access material capital and improve their balance sheets over the last three months reiterates the strength of our customers and contracts. We currently are not aware of any material customers being at risk of going into receivership. Prince George continues to perform well, where Q2 was impacted by reduced demand in April, which quickly recovered in May and into June, and we have seen demand levels at or above pre-COVID levels for the past couple of months.
Q2 was also impacted by our 2-week maintenance and debottlenecking program on the refinery, where we were successful in debottlenecking the refinery and are now seeing over 12,000 barrels a day of throughput. When we acquired Prince George, we emphasized that this would be a key defensive asset in a crude collapse. Although not completely immune, we have seen Prince George crack spreads hold at CAD 44 a barrel or above what is likely to be the largest oil price shock that we will see in our careers. While de-leveraging remains our focus, we continue to grow our significant material-related projects that are under 24-month pay outs. Capital expenditures are currently planned to be minimal in 2020 as we focus on de-leveraging, but do want our shareholders to be aware that we do have a significant inventory, which continues to grow of projects with 50% plus rates of return.
The Pipestone Gas Plant had its strongest run times and cash flow generation to date in the second quarter. We expect this to continue throughout the remainder of 2020. Tidewater processed an average volume of 72 million cubic feet a day in the second quarter of 2020, an increase of 10% over the first quarter. Liquids production also increased by 65% with the commissioning of the Pembina C2+ line and the Deep Cut processing unit. Facility uptime and availability for the quarter averaged 96% and 92% respectively. The Pipestone Gas Plant is fully contracted with over 80% committed on take-or-pay arrangements. Throughput on the Pioneer Pipeline continued to be strong and is supported by a 15-year take-or-pay contract with TransAlta. The sale of the Pioneer Pipeline continues to proceed, where the definitive agreement was executed on June 18th. Tidewater expects to close the transaction by year-end 2020.
However, delays in obtaining regulatory approvals could delay the expected closing date into 2021. We continue to be committed to our ESG performance by investing in infrastructure to increase energy and natural resource efficiency, reduce emissions, and enhance environmental performance. We have developed an interface on our website for the investment community to view as part of our transparency to communicate key environmental, safety, and other sustainability metrics. Tidewater is evaluating certain small and medium-scale green projects in conjunction with government funding programs at many of its sites, including our Prince George Refinery. To reiterate, after enduring what is likely the worst shock to the global economy and the oil and gas industry, we do feel the worst is behind us and we are well-positioned for what is likely to be one of the largest economic stimulus and infrastructure build-out periods in our lifetime.
Our business remains resilient as a result of the location and contracted nature of our infrastructure assets, accompanied with strong defensive assets. We are confident in our ability to deliver CAD 175 million-CAD 185 million of Adjusted EBITDA in 2020, with debt to EBITDA, assuming the closing of the Pioneer Pipeline sale, to be three to three and a half times at year-end. Our focus remains free cash flow generation and debt reduction, and we do feel strongly that we can continue to show material debt-adjusted cash flow per share growth for years to come. We are also pleased to welcome Mr. Michael Salamon, Mr. Neil McCarron of Birch Hill Equity Partners, and Ms. Gail Yester to the board of directors.
I do want to thank our staff, board, shareholders, credit syndicate partners, and all stakeholders for all your support through what was likely one of the toughest quarters in our careers. We look forward to delivering strong results in the second half of 2020 and remain confident in our ability to deliver debt-adjusted, per-share free cash flow growth into the future. Our number one priority over the next six months continues to be debt reduction and achieving 3 to 3.5 times debt to EBITDA with the closing of the Pioneer Pipeline sale. I'll pass it back to Mr. Vorra, and he can walk you through some of the details around the financial side of our Q2.
Thanks, Joel. I'll just go over a brief overview of the quarterly highlights. Mostly a comparison to Q1, given significant changes in the business from the same period in the prior year. I think more appropriate to compare to Q1. Starting with top-line revenue of approximately CAD 178 million, it was a decrease over Q1, primarily related to the change in commodity prices, we had a commensurate decrease in operating expenses of approximately 30%, which resulted in gross operating margin, adjusted for hedging gains, of approximately 23% versus 18% in the prior quarter. Although revenue moved down, operating costs also moved down, and overall adjusted operating margin for hedging gains increased from 18% to 23%, primarily as a result of increased contribution from the Pipestone Gas Plant, the connection to the Pembina Pipeline pipelines, and the uptime that Joel MacLeod mentioned.
Adjusted operating margin was approximately CAD 43.5 million compared to CAD 45 million in the prior quarter, so in line and in line with our expectations given impacts from COVID in late Q1 and in early Q2, and then again saw a pretty quick recovery into the end of May and into June. EBITDA margin was approximately CAD 42 million and 23%. Increased contribution from Pipestone gas plant being in the summer injection season. The increased margins from gas storage, which is a high margin business, higher margin in the summer. A little bit of impact in the early part of the quarter from the refinery. Overall, Adjusted EBITDA of approximately CAD 42 million and an EBITDA margin of 23%. Distributable cash flow was CAD 10.5 million for the quarter, a payout ratio of approximately 32%. We're generally targeting under 25% payout ratio for the year.
Maintenance capital would've been one of the drivers for that distributable cash flow number, which was our planned two-week outage at the Prince George Refinery. Expect that distributable cash flow number to increase and be sub 30% and even sub 25% for Q3 and Q4. Again, committed to reducing debt, applying free cash flow to that net debt amount. Net debt decreased approximately CAD 9 million quarter-over-quarter, which I think was sort of in line with expectations. Not a massive movement from Q1 to Q2, but expect that number and de-leveraging to increase into the end of the year. I think with that, we've touched on the main financial highlights and I think we'll open it up to the call for questions.
Thank you. At this time, I would like to remind everyone, in order to ask a question, press star, then the number one on your telephone keypad. Your first question comes from Patrick Kenny of National Bank Financial. Your line is open.
Yeah. Hey, guys. Just starting with the closing of Pioneer. You're still shooting for year-end, but with respect to mitigating any delays there, can you just provide some detail on what you guys can do specifically to expedite the approval process? Maybe at the same time, just clarify what the bottlenecks are that could push closing towards mid next year.
Yeah, for sure, Pat. Not necessarily an easy answer. I think we just want to assure our shareholders that it's daily. Our partner in TransAlta has been a huge help and full court press to move through the regulatory process. Step one is to make all the related filings, and we're close to doing so. Then just ensuring we have all our ducks in a row to be as supportive as possible. Want to assure our shareholders that it's all hands on deck. We're not all away on holidays. 50% plus of our staff are in the office, and it's full court press. I think some of it, Pat, we'd like to keep internal and confidential just so we don't set off any alarms or flags through the process. Overall, it's going well.
We're feeling, I'd say, good about closing before year-end, but there is risk that we slip into Q1.
Okay, fair enough. Thanks for that. Speaking of somewhat confidential agreements, but the Husky force majeure, didn't appear to be a big factor in the quarter at the end of the day. Like you said, June demand pretty much back to normal there. Maybe just an update on Husky potentially backfilling any volume commitment shortfall that was experienced back in April and May, potentially coming back through the remaining months of 2020 here, and if that revenue recovery is baked into your CAD 175 million-CAD 185 million EBITDA guidance, or does that represent a bit of upside potential to those numbers?
Yeah, Pat. Husky's been a great partner. Obviously, we always got to think through risk and definitely had legal counsel ready. To see Prince George demand recover as quick as it has, and Husky's been doing an incredible job and gone out of their way. We've seen, I'd say, record lifts.
We've seen days where we see as much as 10,000 barrels a day of diesel only move, especially with Coastal GasLink ramping up. We get an updated forecast from Husky, and right now they're set to meet and/or potentially exceed their offtake, which is pretty exciting. Would I say there's significant upside to our base CAD 175 million-CAD 185 million of EBITDA 2020? No, I wouldn't say it's material or significant, but there's definitely some upside there and continue to see more growth in demand than we definitely would've anticipated.
Okay, great. I know it's still early days on the biofuels frontier or even the Low Carbon Fuel Standard opportunities, but maybe you can just give us a sense as to what sort of capital commitment we're looking at here. Outside of the ESG accretion, I think we saw 50% IRRs in the release. Just how should we be thinking about upside potential to your run rate EBITDA from these more green investments?
Pat, I'd say it's a little early to say. Even when we acquired the Prince George Refinery, the team, Husky, prior owner, did a great job, continually received LCFS Part 3 credits, Low Carbon Fuel Standard credits. Example would be before we took over the refinery on the turnaround, they changed the catalyst to run canola oil and co-process canola oil. We're still evaluating if we're actually going to do that. We're continuing to work through the studies, continue to keep it moving forward and do have some Part 3 credits that we'll receive even into the end of the year. The funding on that piece is near 100%, which has been very helpful. As we speak today, we don't have anything of significant size and scale. We're talking about more of studies in that CAD 1 million-CAD 5 million range, even combined with all the pieces.
I think that the larger discussions are on a full renewable diesel component. Again, we'd like to keep some of that confidential, and today there's no certainty. We wouldn't even be 30%, 40%, 50% certain, but we want to do the studies, do the work, and if all goes well, we're more than happy to evaluate and the support from even the federal and the provincial governments, maybe there is a higher probability, and we're excited to explore those opportunities.
Okay. No, that's helpful, Joel. Last one for me, if I could, just on gas storage fundamentals, looking, I guess, fairly attractive heading into this winter. Can you just remind us, between Pipestone and Brazeau, how much is contracted versus available for you to take advantage of any strength in spreads through the winter?
Good question, Pat. I'd say we're generally contracted. We'd be north of 80%. That being said, we have seen operationally, the reservoirs exceed our expectations at times. When we look forward to the winter, I'd say we're north of 80%, maybe even north of 90% contracted with a little bit of a cushion there. I'd say there's some ability to utilize some of that space ourselves. For the most part, we are fully contracted. Obviously, if we see some volatility in AECO gas prices, that obviously always helps storage. For the most part, those reservoirs are fully contracted.
Okay. That's great. Thanks, guys. I'll jump back on the queue.
Thanks, Pat.
Your next question comes from Robert Hope of Scotiabank. Your line is open.
Yep. Morning, everyone, or afternoon. Just taking a look at PGR. With your Q1 results, you were targeting around CAD 75 million there. We have seen demand kind of pick up stronger than anticipated and cracks remain, we'll call it robust. How did Q2 play out, and how does the rest of the year look versus your prior guidance?
Hi, Rob. Good question. I'd say April was definitely an underperformance, mainly due to demand with COVID and demand moving down. We also had our two-week maintenance. Want to be upfront and admit that April underperformed. To see demand come back as quick as it did, May was probably close to in line, maybe a touch under. With refined product pricing moving up and crude being relatively cheap that we had moved into our tanks, May probably was in line. June, I would say, was getting close to kind of an outperformance month on that base CAD 75 million of EBITDA. We are hopeful that that'll continue here into the end of the year. We don't want to get ahead of ourselves, but we do see our daily demand, and today things are feeling pretty darn good.
All right. That's helpful. When you're speaking about these, we'll call it quick payback projects, I realize that debt repayment will be a focus over the next six months, how big is the portfolio of these projects, and how quickly would you want to move on these following a Pioneer close?
Rob. We're starting with small projects. Butane blending would be a great example, a magnitude of CAD 1 million, and sub-2-year payout. We've also debottlenecked a lot of our units. We're working through our Unifiner. We did debottleneck our isom unit, and our reformer we're close to debottlenecking, and these are hundreds of thousands of CAD, pump changes. Some are even changing valves or testing control valves. Again, our team's done an incredible job, and seeing opportunities. If you said, "Joel, are small ones interesting, helpful?" I would say we're not spending a lot of time yet on big expansions, a 20, a 50, a CAD 75 million expansion. For us to have success on these low-capital, high rate of return projects is meaningful, and we have to focus on de-leveraging today.
Over the next two, four, six months, I do think we'll have some meaningful capital projects of size and scale. I think the question will be, can they truly hold sub-two-year payout? I'd say we have an inventory of 10 plus projects, none over CAD 3 million, to give you a sense. We haven't been spending time on a new FCC unit, a new crude unit, a major tankage build-out. As today it's been smaller projects, high rate of return. Over the next three, six months, I think we'll start looking at some of those bigger projects, especially if we have government funding on some of the green projects, then there is potential that those returns are strong. Don't want to set the expectation that we have CAD 50 million and CAD 100 million projects today that we know are going to be sub-two-year payouts.
All right. Appreciate the color. Thank you.
Thanks, Rob.
Your next question comes from Robert Catellier of CIBC Capital Markets. Your line is open.
Hey, good afternoon, everybody. First question is on your outlook for 2021. If the drilling continues at the current pace, which I think we can all agree is pretty anemic, what degree of throughput declines are possible in light of the relatively high level of contracting you have?
Yeah. Do you mean declines, Rob, around our assets if, to your point, drilling activity stays? What would we see-
Yeah
at our main assets?
Yeah.
Prince George, as a refinery, we wouldn't have a concern today. The refinery's small, which is helpful. It's only a 12,000 barrel a day refinery compared to the production in B.C., and that we can bring in Pipestone itself, is fully contracted. It's a good point. To see Kelt remove all their debt, now they're focused on Wembley/Pipestone and Oak. Our sense is they're probably going to drill a couple wells. I don't want to speak for themselves. Obviously if we see a continued uptick in commodity price, they could accelerate. Pipestone Energy Corp. itself did raise CAD 70 million on their convertible preferred and did come out and say, "We are going to accelerate capital." That's right in our backyard, which is helpful. I would say Pipestone, you probably see production fairly flat, and we are fully contracted.
If we go to Brazeau, I want to go in order of magnitude and materiality. If we go to Brazeau River, this is public data, but you'd see Westbrick continuing to run one rig, which has been helpful, and we've been able to hold Brazeau volumes fairly flat and potentially even increase with Keyera shutting in some of their plants and producers asking if they can get into Brazeau. Again, want to be careful not to overpromise and say Brazeau River is going to have a massive ramp in throughput. I think if we said, we expect it to be fairly flat, that would be conservative. Ram River itself, which would probably be our next largest chunk of cash flow, has been fairly flat. This morning AECO at above CAD 230 is helpful.
We saw Paramount, one of our larger customers, release their results, and they generated, I think, around CAD 15 million of quarterly cash flow. That 230, 220, 210 gas price is very helpful to even a Ram River. Our view would be if gas prices hold where they do or they're in line with the forward strip and oil, we would probably conservatively say a 5%-10% decrease. As we walk through our core assets, today we don't necessarily see a big move down. I'd say gas price would be the driver and be helpful at Ram River and Brazeau, where liquids pricing would be more the driver up at Pipestone.
All right. It's very good detail there. The 5%-10%, though, seems like a lot relative to the contracting of the tools you have at some of the plants.
Yep.
Maybe we could segue into the marketing business. There was a comment in the MD&A that the marketing business has found new ways to enhance producer netbacks and create some operational flexibility. Can you provide a little bit more color on that, please?
For sure. Our Pembina C2+ connection came online at Pipestone, which is very helpful to liquids marketing to the producers. We are able to deliver a small ethane premium to producers, which, four or five years ago, even prior to Tidewater, I'd never seen ethane premiums. That comes initially from Brazeau and our team doing a great job of negotiating with some of the large ethane buyers at Edmonton. That would be a lever that Pipestone has and is significant. Even to have now the C3 molecules, the C4 molecules, tied in at Pipestone gives us another lever to help optimize, improve customers' netbacks, but leverage some of our relationships and our rail cars to find new markets. That's probably the biggest lever on the marketing piece. The refined product piece, I would say we do expect to see dislocations, and we have seen some.
When we saw demand in April get crushed at Prince George, we had to get creative, leverage off some of our historic relationships and move refined products outside of Prince George and Pacific Northwest on the U.S. side to even Eastern Canada, and our team did a great job there. That would be another piece that we're excited to continue to grow and explore.
Okay. Final question from me is, we've seen a number of cost reduction programs in the industry. I wonder if there's a similar opportunity for Tidewater, and then should we expect any other asset sales in the second half or 2021?
Cost reduction, I may get Joel to jump in. I know at Brazeau River, our team's done a great job there to find some options, definitely across our assets. For the first time, as most of you know, we've been on the offensive and been very aggressive over the past four years. We've had time to reflect internally and optimize. To your point, Rob, I know Brazeau River is an area where we've had success, but across all our assets, we've been able to trim costs. I'm trying to think of specific examples, and I'll let Joel jump in. Can you think of any other specific examples, Joel? I know in general it's just grinding through costs, even maintenance. You'll see from our quarter we're under forecast, under budget as we speak, and it's a function of labor being hungry to work and having four and five-year history.
I know it doesn't seem like a lot, but for Tidewater, it's a big deal to have four and five-year history with some of the contractors, and they want to work rather than sit at home, so they're willing to bring their rates down. Joel, anything else you think I'm missing?
No, I think I just reiterate those comments. Rob, towards the end of 2019 into Q1 2020, we were in hunker-down mode. When things started to shut down into Q1, we had put a lot of those measures in already, cutting CapEx, looking at maintenance capital, 3-year type turnaround, move them to 4 years, those types of things. Even looking at vendors' operating costs at all the plants. We had started that initiative before there was a big downturn. I would reiterate the comments that in Q2 we probably saw maybe even more than we would have expected some opportunities in cutting costs. Brazeau would be the biggest example. Looking at opportunities at our other larger assets.
I know the Pipestone team, we don't have 12 months under our belt yet at that plant, but that would be one where commissioning through Q4 and then a pretty early cold winter. The team is now getting close to having a year under their belt at the plant, and I would say that's probably the next biggest opportunity and they're laser-focused on reducing OpEx there. A lot of it has been looked at and we saw some of that come to fruition in Q2. Yeah, there's some more opportunities. I think Pipestone might be one of the other examples. There's a number of optimization opportunities even outside OpEx now that we've had some time to focus internally.
Rob, you had a second part to your question. I want to make sure we answered it.
Yeah. Just on asset sales, should we expect anything else on the asset sale front in the next 6-18 months?
The pieces we're looking at are small. I think in our previous quarter you probably saw, and most saw the small gain from the sale of one of our small ancillary businesses. We're working through a few others, but they're small. We're talking sub CAD 6 million type of pieces, even at times maybe CAD 1 million-ish, just to focus our staff. To your point, trim even a little bit of G&A, but focus our team on our larger contracted assets. I would say, Rob, unlikely you'll see anything material, but you may see a CAD 3 million or CAD 4 million piece or a CAD 1 million piece even to reduce some liabilities here into the end of the year. No guarantees. It's still pretty tough to get deals done given the uncertainty in general.
Okay, thanks everybody.
Thanks, Rob.
Again, if you would like to ask a question, press star then the number one on your telephone keypad. Your next question comes from Robert Kwan of RBC Capital Markets. Your line is open.
Hey, good morning. First question here is just on the payout ratio. In the first quarter, the language was for it to be under 30%, and now you've introduced that range of 20%-30%. You mentioned earlier on the call that you're targeting potentially to be below 25%, but just wondering what was behind introducing the 20% on the low end? Is that just tightening up the guidance range, or are you looking at potential to actually modestly increase the dividend?
It's a good question, Robert. I think we've got a little more certainty on where the payout ratio is going to land. Q1, Q2 would have impacted. I would have probably told you end of Q4 2019 we'd be targeting under 20%. With Q1, Q2, that's moved up. I'd say 5%-10%, but still expect to be well under 30%. I think we're going to see that payout ratio come down and distributable cash flow increase into Q3, Q4. On the dividend increase, it's a good question and maybe I don't want to say too much, but a modest dividend increase isn't overly impactful to cash flow. At the same time, we are focused. Number one priority is reducing debt, reducing leverage. Is there a dividend increase behind that guidance? No, not at the moment, it's something that we're always talking about.
Even our board meeting yesterday, it came up. Are there plans this second? No, it's something that we're always evaluating, and there's potential for that.
Got it. Just turning to your planned maintenance activities for the second half of the year. I guess, first, just the nature of whatever maintenance we should be aware of and downtime, and the second being just a projection of what total maintenance CapEx spends would be in the second half.
Total maintenance CapEx, I'd say we'd be similar to Q2, maybe a little bit higher. We did defer some planned maintenance in the second quarter. You may see Q3, Q4 come in a little bit higher. That being said, we do expect distributable cash flow to be higher. I would still expect that metric to increase. I'd say, you may have a 20% increase in maintenance CapEx for Q3, Q4. When we talk about downtime, I wouldn't say anything material. There are two, three type Day maintenance projects across the assets, but nothing material. I wouldn't expect us to have to disclose or guide to any material downtime in the second half of 2020.
Just to add to that, sorry, Rob. Capital maintenance for 2020, still reiterating that CAD 25 million range, just to help you triangulate to a number. As far as downtime, no. I think we've seen definitely more downtime in the first half than you will in the second half. There's no downtime anticipated at Prince George, our largest asset. At Pipestone, you may see a day or two down by a small amount, but nothing material.
Just to clarify, did I hear CAD 25 million? You've only done CAD five and a half in the first half.
Yeah, Rob, there's some tank maintenance at PGR that wouldn't result in some downtime. Some of that, potentially. I think, we're still evaluating whether we end up in Q4-ish or we end up in 2021. Our prior guidance would've been CAD 25 million. Not saying we're going to come right on the nose. We may come a snick under, but that's a result of pushing some of that potentially into 2021, but it could also happen late Q4.
There's actually a fairly material pickup on a quarterly run rate basis, then, into Q3 and Q4, or however it falls, versus what you did in Q2.
I think we just want to give ourselves room to go back to our initial guidance on. Public guidance would be CAD 25-ish million of capital maintenance in 2020. Some of it will be COVID-related work related to get a few additional tanks ready to go before the end of the year is ideal, but to Joel's point, some of it may slip into Q1 of 2021.
Got it. If I can just finish on leverage, I think it's very clear that the number one focus is to get into that 3.5 times range post Pioneer. You've also put out the 2.5 to three times long-term range, I guess, I'm wondering, is there some color you can give as to over what timeframe you want to get there? Or put differently, post Pioneer, do you stay capital light until you get below three times? Does three times then form a ceiling for any other larger initiatives as you go forward?
It's a good question, Rob. For now, we're focused getting down to 3-3.5 times. Then, too, it'll be a function of our cost of capital. I think if the market signals by our share price moving up, we will start to consider capital projects. To your question on the dividend, that was also a question from our board as well. Again, there's no commitment to bump our dividend, but when we receive that CAD 138 million from the Pioneer sale, we're starting to determine how we're going to deploy that capital. Number 1 is definitely debt repayment. To your point, at what point do we start to allocate free cash flow or a portion of that CAD 138 million to capital projects? It won't be significant initially, unless the market signals that they're supportive of us going back into growth mode.
Right now, we feel it's very clear from our shareholder base to focus on deleverage, get to 3-3.5 times, and longer term, we'd like to be down in that 2.5-3 time range. Depending on the opportunity as well, the rate of return, the contracted nature of the opportunity, we may look at capital projects, but for the next six-12 months, deleveraging, and you won't see any material capital projects.
That's great. Thank you.
Thanks, Rob.
There are no further questions at this time. I will now return the call to our presenters.
Thanks, everyone. We really appreciate your time today, all your support, and have a good day.
Thanks, everyone.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.