Ladies and gentlemen, thank you for standing by, and welcome to the Tidewater Midstream and Infrastructure Ltd. PGR Acquisition Announcement 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. If you require any further assistance, please press star zero. I would now like to hand the conference over to your speakers today, Joel MacLeod and Joel Vorra. Thank you. Mr. Joel Vorra, please go ahead, sir.
Thank you. Thanks everybody for joining us today on the call. Today with me is Joel MacLeod, Tidewater's President and CEO. Before passing the call over to Joel for a review of the acquisition, I just want to remind everyone that some of the comments made today are forward-looking in nature based on Tidewater's current expectations, estimates, and judgments. Forward-looking statements we express today are subject to risks and uncertainties and could cause actual results to differ from expectations. Further, some of the information provided refers to non-GAAP measures. For more information about non-GAAP measures, you can review our various financial reports available at tidewatermidstream.com or on SEDAR. With that, I'll pass it to Joel MacLeod for a review of the acquisition.
Thank you, Joel. Good morning, everyone. I wanted to start with a thank you to David Gardner and the entire Husky team, because I think both sides will agree this is another win-win transaction for both Tidewater and Husky. Husky's a key partner for us, including at another one of our core areas, and we continue to grow our partnership with Husky. I also want to thank our credit syndicate for the support as to fund the acquisition of this size with a 5%-6.5% cost of capital is almost unheard of for a company of our size and should provide comfort to the market around the quality of the cash flows of the refinery, the value chain addition, and the current outperformance of the asset, which is expected to continue.
To jump into the call here, wanted to start by just emphasizing how extremely pleased we are with the acquisition, that is truly once in a career transaction for us and a value chain addition at a price we would never dream we could get the asset at a 2-time to 3-time cash flow multiple. Being out at the refinery again on Friday and seeing the refinery is running near record throughput at roughly 11,500 barrels a day and continue to see crack spreads at CAD 50 to CAD 60 a barrel at Prince George with diesel cracks on a spot basis near CAD 70 a barrel Canadian. The asset continues to heavily outperform our forecast, and we have not factored in any upside where we continue to see significant upside with the Prince George and area market currently being short about 150,000 barrels a day of refined product.
We are utilizing our CAD 44 a barrel crack spread for our CAD 75 million forecast. I've seen crack spreads continually achieve CAD 50-CAD 60 a barrel over the past 18 months. The outperformance of the asset would enable us to deleverage quicker than we are currently forecasting and get us to our 24-month target of roughly two and a half to three times debt to EBITDA. This also includes no upside being factored in, which we will briefly run through here in a bit. We have been clear with our board that this is a transaction that will likely have initial negative response and may take weeks and/or a few quarters of results before we receive buy-in from what is an extremely challenging Canadian energy market.
We want to be crystal clear that the number one reason for the acquisition is the significant amount of cash flow from the asset, which will delever Tidewater and get us back to where we want to be, which was in the 2.5 times to 3.5 times debt to EBITDA range. Further, the accretion of 50% on an EBITDA/cash flow per share basis is material to us and our shareholders, and with the outperformance of the refinery, we start to see a clear path to self-funding and significant free cash flow into the future. Current outperformance of the asset would drive accelerated deleveraging, which is a key focus for us and message we are receiving from our shareholders. The second and critical reason for the acquisition, and it is very real, is the addition to the Tidewater value chain.
Initially, when we looked at the asset when the process began in early 2019, I would've said it would be a stretch to say that this would be a direct value chain add. As we continue to spend time with the operations team and process engineers out at Prince George, we continue to hear loud and clear that 45 API crude condensate is the key feedstock for the refinery and optimizes diesel yields and gasoline yields, where the refinery produces 85% diesel and gasoline today. Further, two of our largest producer customers at Pipestone are two of the largest customers at Prince George, and numerous producers have reached out to us since announcing the deal and are eager to look at long-term contracts.
Maybe just back to the value chain piece, I want to be clear that Pipestone produces, and today we're in the ramp-up phase, but as we get to full ramp-up into the end of the year, we expect Pipestone to generate 15,000 barrels a day of 40 API condensate/crude, which is the ideal feedstock for this 12,000 barrel a day refinery. Prince George is a very real option for Montney producers in B.C. and Alberta, as it is only a six-hour truck ride from Pipestone and roughly a four-and-a-half-hour truck ride from Dawson, Parkland, Taylor, B.C. At a CAD 7-CAD 9 a barrel truck cost from Pipestone, it is comparable to the current pipeline costs from Taylor at roughly CAD 6-CAD 7 a barrel. While the 45 API crude/condensate from Pipestone will result in higher diesel and gasoline yields.
We will be working to explore longer-term fixed fee take-or-pay tolling contracts and agreements at the refinery, which would also further reduce our volatility of cash flows around the asset. The offtake agreement would be the number 3 critical portion of the arrangement and the transaction. We spent a ton of time on the related offtake agreement. We relayed to Husky that in order for us to move forward and having an investment-grade offtake with take-or-pay components around volume and price was absolutely critical for us. We would not have moved forward if we couldn't achieve the related offtake, as messaging this acquisition and transaction is not going to be easy. We felt having an investment-grade offtake and an offtake with take-or-pay provisions around supply and price was critical.
There are financial penalties should 90% of the diesel and gasoline supply not be lifted based on market pricing. Our price is clearly defined as a fixed discount to the Prince George rack price, and the discount to the Prince George rack price has not moved by over CAD 0.02-CAD 0.03 a liter over the past five-plus years, so we have certainty on price and volume. The offtake agreement results in 75% of Tidewater's pro forma EBITDA being under take-or-pay or long-term commitments and 50% of our pro forma EBITDA being derived from investment-grade counterparties, which we are extremely happy with. To jump in to a few other pieces. Some of the feedback we received from Friday has been around the historic EBITDA of the asset being roughly CAD 50 million. We would like to just hit this on the head and walk everyone through this.
Through this time period, 2013 to 2017, there were two turnarounds. The plant was down for just over a month with both of these turnarounds. Further, one operational outage, and in some cases, two per year were experienced by the refinery. The most important fact would be the crack spreads. Crack spreads were CAD 40 in 2013, CAD 40 in 2014, CAD 41 in 2015, CAD 35 in 2016, CAD 40 again in 2017. More recently, with the IMO requirements, low sulfur regulations, we saw CAD 59 cracks in 2018 at Prince George, CAD 50s at the front end of '19, and more recently, we're closing in back into the CAD 60 range on cracks at Prince George. Our CAD 75 million forecast is based off a CAD 44 crack, which is in our presentation, and we continue to see cracks north of CAD 55 a barrel at Prince George.
Just to quantify the potential impact, a CAD 10 a barrel improvement in a crack spread on 10,000 barrels a day of diesel and gasoline production, which the refinery does today, is approximately CAD 35 million of cash flow or EBITDA. It is material to us and would be material to our de-leveraging. Husky, the vendors forecast and other experts continue to forecast, IHS included, that with IMO, the related low sulfur requirements, we continue to see forecasts of CAD 100-plus million, us adding the contingency payment to Husky. Should the EBITDA be over CAD 100 million, we are required to share 50% of that EBITDA with Husky and up to a maximum of CAD 30 million a year payment in 2020 and 2021 only. The vendor did assign significant value to that, and we continue to see forecasts in that range and/or higher.
Just wanted to be clear that that was a key component of the transaction and Husky did place value on those contingent payments. A big driver of the large diesel crack we're seeing today and have seen over the last 24 months is IMO and low sulfur requirements. Also, B.C. being short 150,000 barrels a day. Also, please do not discount the demand from some of the projects in B.C., and we saw that firsthand being on-site on Friday. There is a demand pull from the Site C dam construction project to the north from Coastal GasLink from the LNG projects, including LNG Canada, and also the potential Trans Mountain construction. We are seeing increased demand from some very large construction projects in the area.
Although we have not built in any upside to our CAD 75 million forecast, we do want to be clear that there is significant upside, including initial projects that require no capital. This includes moving 45 API from Pipestone into Prince George immediately, and the reformer at the refinery does have spare capacity, where even 500 barrels a day at a CAD 55 crack would result in roughly CAD 10 million of EBITDA. Blending opportunities at Prince George are material as we have rack feedstock from our Brazeau rack that are ideal for gasoline blending, in addition to the ability to add butane blending with limited capital. Prince George Refinery will benefit from IMO as it produces low sulfur diesel and gasoline and has excess hydrogen.
It is one of the only assets which will and can benefit from Low Carbon Fuel Standards with the ability to blend ethanol, which it does today, biodiesel, again, does today. The Prince George team has some great renewable energy projects, including processing canola oil. There are only a few assets in B.C. that have the ability to take advantage of Low Carbon Fuel Standards, and Prince George is one that we're extremely excited about. Prince George does have 1 million barrels of tankage that we plan to contract out a portion of, and the potential for Trans Mountain to expand could become a key storage hub for Trans Mountain moving forward.
Maybe one of the most important pieces to me and the reason we went out to Prince George on Friday rather than taking analyst calls and investor calls myself, I know Joel held down the fort, was just people. People are a huge part of the acquisition. We are ecstatic to have the entire Prince George team join the Tidewater family, and it was key for me to be on site on Friday to welcome our team, which have a pile of experience with multiple team members of over 40 years experience at the refinery. The runtime at the refinery is top quartile and is due to the Prince George team, who continue to do an incredible job. Also want the market to be aware that our board does have significant downstream experience.
With Greta Raymond and Doug Fraser being on our board, were executives at refiners in Petro-Canada and Husky and have been instrumental and heavily involved in the transaction. We have also engaged numerous refinery experts through our due diligence process, and the resounding feedback is this is a once in a career type of opportunity at the multiple we've paid and the value chain synergies. There has been comments. Just wanted to address a few of the comments we heard on Friday, some comments around our cost per barrel of throughput, and want to be clear, after continuing to circle with our refinery experts, that this is not relevant. If we're comparing a simple topping refinery, an asphalt refinery to a refinery like Prince George that has an FCC, a reformer, an isomerization unit.
Cannot compare a simple refinery to a complex refinery with an 85% diesel gasoline yield, more importantly, cash flow. Comparing a refinery on the Gulf Coast or the East Coast with a CAD 15 or CAD 12 a barrel crack to a B.C. refinery or even an Edmonton refinery with a CAD 30, CAD 40, CAD 50+ barrel crack, is not relevant. Just wanna hit some of those comments on the head where we would suggest, and our refinery experts would suggest to focus on cash flow multiples and free cash flow multiples. One other comment we just wanted to address was around inventory. The refinery historically has ran high inventories. There is 1 million barrels of storage, which is great to have. We do plan to reduce inventory by approximately 25% and potentially more to free up the related working capital and also reduce our related leverage.
Some analysts are including the inventory in the purchase price. I just want to clarify that you will see the inventory number move down over time as we look to deleverage and also just reduce the working capital crunch, related to holding some of that inventory. Before I pass it over to Mr. Vorra to see if he has any comments, I just want to reiterate that we are extremely pleased with the acquisition and the related outperformance of the asset, and I remain committed to adding materially to my current shareholdings per our July 23rd press release, and I'm excited to do so. Thanks again to our shareholders, staff, board, advisors for all your support. As we are fully aware, it may take a few quarters for the market to digest this acquisition, and we are happy to be available for calls and/or in-person meetings.
With that, I'll see if Mr. Vorra has any comments, and we can open it up to any questions.
Yeah, no, I think you covered the main pieces, Joel. Happy to open it up to questions.
Thank you. As a reminder, to ask a question, you will need to press *1 on your telephone. To withdraw your question, press the pound or hash key. Please stand by while we compile the Q&A roster. Your first question here comes from Patrick Kenny with National Bank Financial. Please go ahead. Your line is open.
Yeah. Hey, guys. Maybe we can just start with the deleveraging profile. In the press release, the CAD 810 million of pro forma net debt drops by about CAD 100 million by the end of 2020. Of course, that doesn't include any spend on the pipestone phase 2 next year. Just wondering if you could walk us through your thoughts on how you might look to fund a phase 2 expansion while also trying to take down the balance sheet through 2020.
Yeah, no problem, Pat. Want to admit, at no point here over the last month were we 100% certain we were gonna be able to get credit syndicate support at 5%-6.5% interest to get the deal done. We'll need a little time, but as we're out at the refinery again on Friday and we continue to see outperformance and the related cash flow, to me, it's feeling like we're in a much stronger position to fund Pipestone phase 2. We do not necessarily have to move to a full-blown joint venture and move assets into a joint venture when we realize the related cash flow and have seen proposals from parties to acquire working interest in Pipestone phase 1 at a premium, and also have small ownership in Pipestone phase 2.
We want to operate and control Pipestone phase one and phase two, but there is more and more interest around us selling, say, a 20%-30% working interest in Pipestone phase one to fund Pipestone phase two. Now with this wall of cash flow, it's something we are going to strongly evaluate here over the coming months.
Great. What about looking at other non-core asset sales within the portfolio?
Absolutely. We need to remain focused, and with the potential outperformance of the asset that we've acquired, it's a great time for us to consider non-core asset sales. Again, we haven't spent a pile of time there, but we will over the coming months, and we'd love to utilize proceeds or consider proceeds from non-core asset sales to help fund a Pipestone phase two. We do not have to do anything. We're not required to monetize any assets. Absolutely, we will be evaluating options to fund Pipestone phase two.
Just moving over to some of the commercial synergies from the Pipestone plant, and just wondering if we can get a bit more color on transporting condensate in from Pipestone to Prince George, boosting the margins and the EBITDA at Prince George, while also helping to improve the net backs for your Pipestone customers. If you can just walk us through those dynamics.
Yep. Cost to move a truck of condensate or crude from Pipestone to Prince George, we would be a six-ish hour truck ride or a CAD 7-CAD 9 a barrel cost, where our tolls on Pembina from Taylor today are in that CAD 6-CAD 7 a barrel range. The incremental cost is not overly material to us, but the related yield improvement is significant, especially when we've got units that can have capacity, like our reformer unit today.
Where we'd like to head, and even some of the initial feedback from some of the producers, is to reduce our volatility and our cash flows commodity exposure, and we will be considering longer-term contracts with our customers for a tolling arrangement where we could potentially receive, I don't know, a CAD 35-CAD 50 a barrel fee to process their oil and give producers back that diesel or gasoline product, when today, diesel cracks at Prince George are CAD 70 a barrel, for example. We do not want to promise the market that we know we're going to get there in the next three to six months. Those discussions have started, and there's more interest there than we would've anticipated.
If we could turn Prince George into more of a tolling cash flow structure, our sense is the market would prefer to reduce the volatility of our cash flows. If we can transform a portion of those cash flows into tolling cash flow, it is something we're going to consider, in addition to having 1 million barrels of storage on-site, which we can also likely contract out a portion if we wish to do so.
Great. Last one from me, guys, if I could, just on the hedging policy for the asset. What % of annual production would you like to lock in going forward? Maybe you could just update us on what crack spread you could actually hedge at today through, say, 2020.
Great. Pat, I would say today we're evaluating. We've received quotes from large trade shops on hedging from an Edmonton Light Sweet or a condensate price at Edmonton, all the way through to a Prince George rack price on diesel and gasoline, and also at Edmonton. The issue we have is that the related financial institutions start to take pieces of those crack spreads the closer we get to a Prince George rack price. If we continue to see diesel cracks move out, we are likely to hedge a portion of the related crack spread. Right now, it's receiving feedback and discussions with our board. I can't commit to 50% of the related hedge or crack spread being hedged. We are evaluating it as we speak. When we looked at historic crack spreads, even over the last six, seven years, we didn't see them go under CAD 35.
Even in the past 18 months, it's been a consistent CAD 50 barrel or plus crack. We just want to have some discussions with our key shareholders, our board, and then determine a risk management hedging policy around the asset. We are evaluating. We definitely look to hedge Edmonton Light, for example. We do that today on some of our crude moves. When we see spot Edmonton Light at a minus four differential, and yet the forward strip at a minus six, minus seven, that's an immediate two-ish CAD a barrel we can add to our profit. You will see us hedge components. I think the question will be how much of that entire crack spread do we look to hedge over the next 12, 24, 36 months? To your question, how far out can you hedge?
I would say we're definitely two years out, but as we start to get three and four years out, I'd hate to pound the table and tell you it's not going to be a problem. Okay. That's great, Joel. Thanks a lot.
Your next question comes from Robert Kwan with RBC Capital Markets. Please go ahead. Your line is open.
Great. Good morning. If I can just come back here to the leverage in that two and a half to three, that 24-month target. Is that based on underlying EBITDA of CAD 75 million for Prince George?
To get to end of year 2021, we would see 3 times debt to EBITDA, Robert. Where we're saying there is potential to get to 2.5 is when we see the outperformance that we're seeing today and have seen over the last 18-24 months. The 2.5-3 times. 3 times, we're comfortable on our CAD 75 million forecast. 2.5 would be based on the outperformance, but 2, we haven't factored in any upside into the asset as well.
Got it. With that 24 months timeframe, how are you looking at that? Is that a goal, or are you looking at it more as a commitment, looking at PGR plus, say, Pipestone 2, anything else you get into will have to fit within that two and a half to three times range going forward?
I mean, we have to be focused today. Pipestone Phase Two would be our only true capital project, and de-leveraging is absolutely a focus, and that message is well received from our shareholders. Could we commit to being at 2.5-3 times in 24 months? Not at this time, it is a target that we take very seriously and are working extremely hard to achieve and feel we can.
Okay. Just a couple smaller things here. Can you just talk about the maintenance CapEx, both what, say, a non-turnaround year might look like, and then what does a turnaround year look like on the maintenance side?
Yep. Over the past seven years, we've seen years where it's sub CAD 1 million. Let's exclude turnaround. Excluding turnaround, sub CAD 1 million. I'd say on average, we'd see CAD 1 million-CAD 2 million a year of maintenance CapEx. We would use CAD 3 million-CAD 4 million in our budgeting just so we have a cushion. The key piece are those three to four-year turnarounds, which are CAD 30 million-CAD 40 million. We've been messaged by Husky and the team on the ground that potentially we can move to four years, we, for now, are sticking to a conservative three-year turnaround game plan at CAD 30 million-CAD 40 million a year.
Okay. Just last on the debt costs. I assume the base rates are floating. If that's true, are you looking at anything to hedge out your base rates?
Mr. Vorra, maybe I'll let you handle that one.
Yeah, we are, Robert. I think that's something we're evaluating daily and even today, looking at those pieces again. Yeah, it's probably something that we'll look to lock in.
Okay. That's great. Thank you.
Thank you.
Your next question comes from Brent Watson with Cormark Securities. Please go ahead. Your line is open.
Hey, guys. Thanks. Sounds like a pretty clean facility. Just had a question around how decommissioning might show up there, if at all, and what a theoretical decommissioning cost might look like for that plant.
Joel, do you want to handle that one or-
Yeah. The decommissioning, Brent, would be close to, say, what we would see at a Ram facility. The footprint of the plant is similar to some of the other facilities. We have overall long-term decommissioning and remediation would be in that CAD 55 million-CAD 60 million range. For accounting, we're still working through some pieces, but that likely doesn't end up on the balance sheet given the facility's considered sort of an indefinite asset, given those three to four-year turnarounds. Overall, full site remediation would be in that CAD 55 million-CAD 60 million.
I think just a few other points, Brent. One being there's ground monitoring wells. There's no material spills. That continues to get better. The flow of the minor contamination is away from the river. We spent a pile of time on the environmental side and have a lot of comfort there. The other piece would just be the salvage value of the processing units are significant. They could be relocated to areas like Acheson, and we'd be north of CAD 600 million of value related to the processing equipment to take light sweet crude to diesel and gasoline.
Great. That's a good color. Thanks.
Your next question comes from Robert Hope with Scotiabank. Please go ahead. Your line is open.
Morning, everyone. Just two broader follow-up questions, as most of my answers have been covered off already. When you look at Prince George as well as the kind of Northeast B.C. area in general, we've seen a cracker potentially in the area as well as another straddle plant and a frack facility. You seem full up for capital over the next year, but longer term, could we see you move more into the chemical side up in that area?
That's a tough one, Rob. Today, I think we need to focus. Definitely Pipestone phase 2. The message loud and clear, and I agree with our shareholders, is focus, deleverage, continue to evaluate Pipestone phase 2. I guess, as you look out two, three, four years, it'll depend on our cost of capital. We have to ensure it's on strategy as well. If there were tolling arrangements around those assets. Here, it doesn't necessarily have tolling arrangements around AEF and butane, but I know Inter Pipeline and Pembina are working towards tolling arrangements around their PDH/PP facilities. We would consider those options, absolutely. I think given we've got 1 million barrels of storage, we could leverage that piece into helping others in the area and charge related fees. Our rail infrastructure is significant in the area.
I think there's definite synergies and ways we can help versus saying, absolutely, we'd commit, I don't know, a billion-dollar petrochemical facility. I think at this point it would be a bit of a stretch, but we would evaluate, and it would be based off the opportunity as well.
Oh, sorry. Yeah. I was meaning more on the ancillary side with the storage and the rail. Actually at PGR, can you just clarify how much rail capacity is there?
In general, the CN yard, the large pulp and paper mills, Chemtrade offsets us. There is significant capacity. If you said, "No, Joel, what's just at Prince George today?" They recently did an expansion here in the past five or so years. I would say, 20-plus cars a day would roughly be the capacity in it. It's a little higher, and we are looking at ways to increase capacity or leverage off of some of the CN yard and some of the other pieces in the area. If we said in general 20 cars a day, we'd be comfortable with that number. There are teams in the room, but there's five-plus racks there as well, and they are heavily underutilized.
The most recent rack that was put in is state-of-the-art as far as blending, and we are going to look to maximize the use of their CAD 30-plus million rail blending facility.
Thank you.
Your next question comes from Robert Robertson with RHR Capital. Please go ahead. Your line is open.
Good morning, gentlemen. There was mention made that, I guess, the CEO, you, Joel, is pledging your shares to buy more of Tidewater. Is that valid? Has it happened yet? If so, what's the status of it?
Yep. Unfortunately, we've been in blackout here for six, seven months.
That was my last comment on the conference call. Absolutely remain committed. That was our July 23rd release. As soon as I'm given the green light from legal counsel, and happy to move forward and excited to do so.
Okay. On another issue, can you kindly explain the pricing review mechanism for the offtake agreement?
The pricing review mechanism. For the first 12 months, there is a set discount. It is roughly CAD 0.05 a liter for both diesel and gasoline for the first 12 months. There will not be a review. Post that, either party can request a review, and if we cannot come to an agreement, an independent arbitrator is assigned to determine that Prince George rack discount. We spent a pile of time reviewing historical discount sales prices to the Prince George rack price, and we did not see it move by more than CAD 0.02-CAD 0.03 a liter. We have a lot of comfort that there will not be a significant adjustment, and we continue to be inbounded since the announcement on various parties wondering if they can get involved in the offtake.
For now, no, we've got a binding agreement with Husky and happy to have them as a partner.
On the margins, can you kindly tell us what was the lowest margin that you've seen at the refinery in the last, let's say, decade?
Yep. 2016, on an annualized basis, you'll see from slide 24, is a CAD 35 a barrel crack, but we did get even into daily cracks. Don't hold me to this, but I know we didn't see a number under CAD 25, CAD 26 a barrel on a daily number through the last six to seven years. Even when we did see a daily move, it lasted two and three days, not for a month. Slide 24 would outline our crack spread review and the related data back seven years.
Thank you. What would be your break-even point?
On the CAD 75 million of EBITDA, we're using a CAD 44 a barrel crack. That is not break even, but for us, that is a number we're confident we're going to hit to achieve our CAD 75 million of EBITDA, and we are currently seeing cracks north of mid-50s.
Yeah, I understand that, where would be your cash flow break even?
Cash flow break even, we can come back to you. I would guess it's in the CAD 20-CAD 25 a barrel range, but even there, my sense is we'd be cash flow positive.
Okay. I'll get back to you on that.
Okay. Thank you.
Thank you.
Again, if you would like to ask a question, press star 1 on your telephone. Your next question here comes from Curtis Jensen with Robotti. Please go ahead. Your line is open.
Hey, fellas.
Hi, Curtis.
Can you give me an example of a refinery operation that's got the sort of long-term tolling arrangement that you're talking about in the press release? Would such a thing help insulate the business from crack spread volatility?
Step one, I'm not aware of a refinery with a five or a 10-year tolling agreement with a producer, but we will reach out to some of our close refiner contacts here in the next couple of days, as I got to think there's examples of something close. I don't want to say a 10-year agreement where the refiners paid a crack rate, say it's a CAD 44 a barrel fee, and then the producer receives the related diesel or gasoline. We can do some digging and come back to you. Absolutely, we feel it would, if we could head in that direction, and I'm not saying we are for sure, but want to explore those conversations with our producer counterparties. We do feel it would reduce the volatility of the cash flows.
It'd be similar to a gas plant, where if we know our fee is CAD 1 in MCF and we produce condensate off the back of the plant that we market. Similar to a refinery, if we know our fee is CAD 44 a barrel to process their oil, and then we market their related diesel or gasoline for them, and if it was a 10-year contract, then we know effectively what our margin, our crack spread, will be for the next five to 10 years. I do think there will be some interest for producers, not to give us all their volume on those terms.
When the refinery is as small as it is to receive one, two, 3,000 barrels a day from an entity that's 100,000 barrels, and they get exposure to diesel and gasoline, especially when a diesel crack today is close to CAD 70 a barrel, and our forecast is based off of CAD 44 a barrel. If they can see a lift of five, 10, in that case, CAD 25 a barrel, I think it's a discussion that parties are open to.
Okay. I guess the other one, a couple of nitpicks, maybe commentary, but you've been banging the drum on sort of de-levering, and I think your presentations have emphasized the intent to de-lever over the last couple of years, and really, it really hasn't happened at all. I don't know why anybody talks about it, because it doesn't seem likely to happen. It doesn't seem like you want to de-lever or feel like it's important to de-lever the balance sheet when you seem to have access to capital on relatively attractive terms.
To start, we've been messaging these two large capital projects. CAD 100 million TransAlta, our share, CAD 210 million at Pipestone for two years. We've been messaging our debt is going to ramp as we build out these two triple-A assets, contracted assets into the end of 2019 or I guess September-ish of 2019. Want to be clear, we couldn't message de-leverage until after these assets come online. I would agree with your comment that we've said once these assets come online, our plan is to de-leverage, and we'd like to be where we were two or so years ago at 2.5 to even 1 times debt to cash flow, 2.5, 3 years ago. We feel this asset, with its current outperformance, will enable us to be back in that range in a 24-month timeframe and maybe even quicker.
Okay, I'm going to just turn to the stock, the share thing for a minute, because if I'm remembering correctly from your AGM circular, two of your directors don't own any stock at all. Is that still the case? Greta Raymond and Colcleugh, I think his name is.
We can confirm. I'd hate to say something and not be accurate there. They're big supporters, but happy to get your response on that question, Curtis. I can speak to that.
All right. I guess my last thing is just I've always felt like talk is cheap, and you got to start walking the walk on your stock purchase or just drop it from the calls in your commentary because you're perpetually in a blackout period doing deals. The idea that you're going to get in a press release or a commentary and say you really want to buy stock when you know damn well you're going to be blacked out for months going ahead on different deals, it's just disingenuous. My recommendation is just to drop it. If you buy stock, just go out and buy stock. You don't have to be promotional about it.
Yeah, I don't feel I've been promotional from day one when we started the company. I committed CAD 1 million a year. I believe I've hit those targets. Here, our legal counsel's in the room. He's not going to let me respond, but I feel you will see that happen in the near term.
Thanks.
Thank you.
Your next question comes from Elias Foscolos from Industrial Alliance. Please go ahead, your line is open.
Hi, good morning. One broad question to start with. I want to focus a bit on the optimization of the refinery. Was the idea of putting condensate into the refinery something that you came up with during the due diligence process, or was this something that, as you were looking at it, someone at the refinery tapped you on the shoulder and said, "Hey, if you do this, we can do that"?
Yeah, I would say it was a combination of both, Elias. Also George Daneker, who I met when he was more at Chevron and Exxon, and more recently was Gibson's Chief Commercial Officer as an engineer. The message was some of the process units were being underutilized. Our question is, okay, walk us through what process units are being underutilized. There are isomerization unit, which likes a high C5, C6 feed, which is BRC frac condensate, for example. The reformer, which is a big value piece of the refinery, loves a pipestone condensate feed. The front end of the refinery right into the crude unit also loves a 45 API pipestone feed. I would hate to say it was all of us, and we're the smartest guys in the room.
I would say it was a combination of the expertise on the Prince George side, some of our external consultants, and a full team effort.
Okay. Following up a bit on the tolling arrangement potential, a question I'm going to ask you, again, is a bit hypothetical. How much per barrel are you willing to give up to enter into a tolling arrangement? There's a price, of course, that it doesn't work.
Absolutely. I think that's where we'll be evaluating and having some discussions with producers. We do not have to enter into tolling arrangements, but today would be a great time for us to have those discussions when the spot diesel Prince George price is at CAD 0.90 a liter, which equates to roughly close to a $70 a barrel crack. Our forecast right now on the 75 million of EBITDA is $44 a barrel crack. I think most of our shareholders would say, if you can lock $44 a barrel crack in 75 million of EBITDA over the next 5 to 10 years, do it. On the producer side, they would see that today they've got potentially 20-plus dollar a barrel upside in having access to diesel off the back of the plant.
Okay. Sort of one last question, this is going to relate pretty directly to Pipestone two, kind of following up on Patrick a bit. I recall at the end of the Q2 call, you said we were about 90 days away. We're 45 days further on, a little more than that. Do you think we're 45 days away on Pipestone two?
Yep. I think we're in that range. WTI dependent, but we continue to see significant interest and continue to see multiple options. We do feel getting this acquisition signed on Thursday, Friday, it does give us more cash flow and more options versus having to move towards a joint venture type structure if we wanted to move Pipestone phase two. For me, it feels like this acquisition can help simplify the funding of Pipestone phase two.
Got it. I'll stop at this point. I appreciate that color. Thanks.
Thank you, Elias.
Your next question comes from David McColl from Fort Washington Investment Advisors. Please go ahead, your line is open.
Hey, guys. Good acquisition, but just quick question for you. You mentioned a lot about the contract costs and the potential for rail offloading at the refinery. Just to refresh my memory a little bit, would you take rail from Wembley down there? Would you be looking at Edmonton to potentially rail into Prince George or somewhere else?
Yep. Rail would be unlikely to come from Wembley given our truck cost. We could evaluate it, Dave, I would say at this point, you're more likely to see trucks move into Prince George. At times, if condensate prices went to CAD 10 and CAD 15 differentials and we have 1 million barrels of storage at Prince George, we would look to put discounted volumes into storage. We have received freight rates, I know with CN, their freight rates are confidential, I'll give you ballpark rates, they're the lowest freight rates I've seen on any move. Husky in the past has asked us to quote freight rates into Prince George and supply light crude by rail, we would be in the CAD 3 to CAD 4 a barrel range on a freight rate from Edmonton Canadian, which is pretty attractive to us as well.
Definitely. All right, thanks. Appreciate that, guys.
Thank you, David.
Your next question comes from Patrick Kenny with National Bank Financial. Please go ahead, your line is open.
Yeah, quick follow-up, guys. I know the focus of the call is on the acquisition, but while we got you, maybe an update on the base business, just given we've seen frac spreads come down a little bit recently and also had NGTL revise its priority access into storage, which I'm not sure if that would impact your storage margins or not, at least over the near term. Maybe just an update on some of the moving parts for the base business and what gives you confidence in the sustainability of that CAD 130 million run rate EBITDA guidance by starting next year.
Yep. I'd say, Pat, overall, our base business would be in line. In no way is it outperforming today, it would be in line. Our gas storage assets continue to do well and act as a natural hedge when we see these low gas prices, we do see some reduced throughput at some of our facilities. Pipestone coming online as we press released is huge for us, do see potential outperformance as it fully ramps into December and into January, given there continues to be more demand for Pipestone, we're fully contracted at Pipestone. Gas storage going well, Pipestone going well, need some time here to ramp up. I'd say feel confident that we're in line with our base business, want to be clear, we're not seeing heavy outperformance in our base business.
All right. Thanks again.
Thank you.
I'm showing no further questions in the queue at this time. I will turn the call back over to Mr. Joel MacLeod for any closing remarks.
Just want to reiterate how excited we are about the transaction, and really appreciate everyone's time, and we are available if anyone wants to have a call or even an in-person meeting. We know this is a transaction that will take some time, and more than happy to answer the tough questions. Thank you everyone for your time today.
Ladies and gentlemen, this concludes today's conference call. Thank you for participating. You may now disconnect.