Gibson Energy Inc

TSX:GEI

Earnings Call Transcript 2019-Q3

[Operator]

Good morning, ladies and gentlemen. Welcome to the Gibson Energy's 2019 Third Quarter Conference Call. Please be advised that this call is being recorded. I will now like to turn the meeting over to Mr. Mark Chyc-Cies, Vice President Strategy, Planning and Investor Relations. Mr. Chyc-Cies, please go ahead.

[Mark Chyc-Cies]

Thank you, operator. Good morning, and thank you for joining us on this conference call, discussing our third quarter 2019 operational and financial results. On the call this morning from Gibson Energy are; Steve Spaulding, President and Chief Executive Officer; and Sean Brown, Chief Financial Officer.Listeners are reminded that today's call refers to non-GAAP measures and forward-looking information. Descriptions and qualifications and such measures and information are set out in our continuous disclosure documents available on CEDAR.Now, I'd like to turn the call over to Steve.

[Steven R. Spaulding, President, CEO & Director]

Thanks, Mark. Good morning, everyone. And thank you for joining us today. We delivered another strong, consistent quarter with EBITDA of $121 million or $110 million on a comparable basis after adjusting for an one-time change in pension liability. And another strong quarter in distributable cash flow of $72 million. Our infrastructure continues to grow, reaching $82 million in the quarter, an 8% increase from the same quarter last year. $73 million of that came from our Terminals and Pipelines business. Marketing had another strong quarter with $37 million in adjusted EBITDA. We continue to focus on delivering and advancing our strategy throughout each quarter. That means securing $200 million to $300 million in high quality infrastructure projects each year and ensuring that we continue to grow our distributable cash flow on a per share basis.At Hardisty, we're in the process of placing 2 million barrels of storage into service at the top of the hill. In this, in November, the project is on budget with the big win and in accelerating the schedule. 2 of the tanks were initially expected to be placed in service in Q1 of 2020. We are very happy with our project delivery team and on the execution and the early cash flow.And commercially, we continue to progress additional tankage agreements and expect to announce additional tankage before the year-end. Based on our existing discussions with potential tank customers, we remain confident in our ability to grow at that 2two to 4four tank run rate for the next few years. This will allow us to invest $100 million to $200 million in our terminals each year, which is the best risk-return opportunity within our portfolio.At Hardisty, we continue to work with our partner at the rail terminal USD to secure commercial support for our DRU projects. We will need to have the project fully underpinned by long-term take-or-pay contracts in order to sanction the project. At this point in time, I would say that we have a well -- that we are well advanced with 1one customer on the commercial agreements to underpin a portion of the first 100,000 barrels a day phase. And we continue to advance our engineering design as a facility.Based on our work, we feel that we have a very competitive solution, especially considering our ability to leverage our existing terminals and rail infrastructure at Hardisty.This was also the first quarter at Moose Jaw, with the expansion in service. The project was completed ahead of schedule and below budget, and increased capacity from 17,000 to 22,000 barrels a day. The expansion included heat integration equipment that will require very little additional heat. The 30% increase in capacity resulted in a 25% reduction in greenhouse gas on a per barrel basis. We're looking at several high return optimization opportunities as we fine tune the capacity, the facility after the expansion.We continue to be successful in the U.S. relative to the milestones we set out earlier this year. We are executing on our strategy, and beyond what we talked about at our first Investor Day, nearly 2 years ago.Two weeks ago, we placed the Pyote East pipeline in service. And we are now transporting crude oil into Wink. This is a big win for us. It's the first infrastructure asset Gibson Energy has ever built in the U.S. The project team did a great job executing on the project, on schedule and on budget. That said, we're seeing slightly lower volume on the pipeline today than our initial expectation. This is driven by a delay in the timing of some of the completion of the deeper wells, which we expected to drive most of the volume gain. We're not too concerned as the operator continues to drill on the a dedicated lands within their minimum drilling commitment, and the wells are performing 50% better than we estimated in our original type curves.From a commercial perspective, once you have a pipeline in service, you have the advantage of securing additional gathering opportunities around that pipeline. It has been no different with Pyote, we recently entered into an agreement to connect another producer into our system. While existing volumes are small, we doubled our land dedication to our pipeline at a very minimal cost, while adding additional drilling commitments.The U.S. team continues to pursue additional opportunities with numerous parties, mostly bonds and singles, but leveraging the asset we have to perhaps more than double the area dedication and drilling commitments in the future.At Wink, we're having discussions with several parties for tankage. It's still early in the process, but there are certainly the potential for Gibson Energy to build its first tankage in the U.S. in the next year.In all, we continue to target 5 to 5x to 7x EBITDA projects. We see many different opportunities deploy $50 million to $100 million in the U.S., for the next few years. And there's no need for us to reach.In summary, this is another strong consistent quarter, from both an operational and financial perspective. We continue to execute. We are very focused on delivering our capital projects.On the commercial front, we remain confident in our ability to deploy $200 million to $300 million per year or more in capital into high return contracted infrastructure projects.Our financial position is very strong. We are fully funded with marketing outperforming and providing additional cushion. Leverage and payout, both remain well below targeted levels.As I say at each of these calls, the objective is very clear. We need to keep executing our strategy, keep doing what we said we would do.I will now pass the call over to Sean, who'll walk us through the financial results in more detail. Sean?

[Sean M. Brown, Senior VP & CFO]

Thanks, Steve. As Steve mentioned, we had another strong quarter. Results for our infrastructure business were slightly above our internal expectations, and we're again, pleasantly surprised by the performance from marketing. This continues to be a very busy year. In the first half of the year, we completed the sale of all of our non-core businesses on time and within target proceeds, and received our first investment grade credit rating from DBRS.More recently, S&P upgraded their rating of Gibson into investment grade, which allowed us to access the investment grade markets for the first time in September. We were very pleased with how well the offering went, and we appreciate the support we received from our debt investors.In total, we had 72 investors in the offering, with roughly 40% of those investors entering the credit for the first time. This receptivity would compare very favorably with recent offerings from our peers, and would be the highest experience for an initial investment grade offering in the Canadian energy infrastructure space.We've often spoken about reaching investment grade as a key milestone for the company. So let me quickly comment on why we feel that way. Not only does this highlight our quality of cash flows, and further reinforce the transformation into a pure play crude oil infrastructure company, but it also has immediate benefits from a cost of capital perspective.With the most recent offering, we were able to reduce our interest rate from 5.375% to 3.6%, a decrease of over 175 basis points. And that is with 10 years of tenure on the new issue, meaning the interest savings would have been even higher if we had chosen to issue a shorter note.To put this in context, if you look at the cumulative reduction in interest costs that the company has seen since IPO, it's quite amazing. At IPO, interest costs were around 10%. And in 2015, they are about 7%. In 2017, we refinanced our debt to get our interest down to 5.375% and 5.25% and now down to 3.6%. Those are very meaningful savings. Assuming today's level of term debt, annual interest savings at the recent 3.6% coupon would be nearly $60 million from IPO, $30 million from 2015, and over $15 million from 2017. On an actual year-over-year comparison, upon refinancing our 2024 notes, we'll have saved $15 million to $20 million a year, which in context, is nearly a full-year of growth in distributable cash flow at a 10% target. That's a very big win for us.Speaking to the financial results. Reported adjusted EBITDA from combined operations was $121 million in the quarter, but adjusting for the $11 million we booked, related to an amendment to one of our legacy pension plans, the resulting $110 million is more comparable to other quarters and more indicative of the business going forward. The $110 million would be a $37 million decrease from the third quarter of 2018. Of that, $33 million would be a decrease in marketing EBITDA.Marketing segment profit decreased by $17 million. This quarter we had a $12 million unrealized gain on financial instruments, whereas we had a $4 million unrealized loss in the third quarter of last year; accounting for an additional $16 million difference in comparable adjusted EBITDA.Disputable cash flow from combined operations of $72 million was a decrease of $13 million relative to the third quarter of 2018. Again, marketing was the largest driver of the change. Although higher current taxes in the third quarter of last year, as a result of the higher marketing earnings, made the gap narrower on a distributable cash flow basis than on a comparable adjusted EBITDA basis.Other notable changes, relative to the third quarter of last year, were as follows. Infrastructure segment profit was up $6 million on a continuing basis, as a result of new projects coming into service over the last 12 months; including the 3 tanks at Hardisty or 1.1 million barrels of storage, the HURC Rail Facility expansion and the Viking Pipeline.Also, with the expansion of the Moose Jaw facility, the ITP that refined products within marketing [ paced ] infrastructure was also increased, starting in the third quarter of 2019.Also this quarter, reported G&A was a gain of $3 million, a result of the pension adjustment, I spoke to earlier. Absent this gain, G&A would have been $8 million and inline with the third quarter of last year.Interest expenses and finance leases were slightly higher in the third quarter of last year and replacement capital was the same this quarter and last year.On a sequential basis, we very much anticipated a decrease in marketing segment profit as differentials remained narrow and volatility, which often drives opportunity for the crude oil business, was somewhat modest.That said, we outperformed our expectations with marketing $12 million higher in the third quarter than in the second quarter on a segment profit basis. So, very similar when adjusting out unrealized gains or losses.The contribution from infrastructure was up $10 million quarter-over-quarter, after adjusting for the remediation provision last quarter. Specifically, the second quarter had the annual turnaround at Moose Jaw, which was a bit longer this year to accommodate the expansion work without having to shut down the facility for a second time, which was the main driver of a roughly $5 million decrease in Moose Jaw's contribution relative to run rate in the other 3 quarters of the year.Upon re-entering service after that turnaround, Moose Jaw's capacity was higher, with a corresponding increase in the ITP that refined products pays to the infrastructure segment. Also, we saw a small increase in the HURC Rail Facility and on our throughput at our terminals.On a distributable cash flow basis, the third quarter was below the second quarter with an $8 million increase in current tax being equal to the decrease. With this quarter added, and rolling off a very strong third quarter in 2018, distributable cash flow from combined operations for the trailing 12 months is now at $318 million. Resulting in a payout ratio of 60%, which is well below our 70% to 80% target range.Debt to adjusted EBITDA remained relatively constant at 2.6x and remains well below our 3 to 3.5x target. Given that marketing in the fourth quarter of 2018, had its best quarter since IPO at $82 million in segment profit. We expect that both our payout and leverage to increase slightly. But that is why we always think of it, those metrics, in the context of a much more sustainable contribution for marketing as well as our leverage not exceeding 4x and payout ratio being less than 100% on an infrastructure-only basis.And in terms of our outlook for marketing, given our recent experience of meaningfully exceeding our mid-cycle assumption, for a number of quarters in a row, we took some more time to look at whether we ought to adjust that expectation.One thing we noticed is that the mid-cycle nomenclature made it sound more like a P50 or average estimate, where we'd view it as a conservative outlook that we should meet or beat in almost any environment.Importantly, we want to be clear that our ability to self-fund our capital program does not rely on out performance from our marketing segment and we take a conservative view. As a result, going forward we refer to it as our long-term run rate for marketing. We also wanted to make sure that the range was still valid. In that light, with the nearly 25% capacity expansion at Moose Jaw refined products ability to generate margin has increased.Also, since Steve joined, transforming the marketing organization has been a focus. And we are seeing the results of that. The marketing organization has demonstrated that it's able to find opportunities in most markets, whether wide or narrow differentials and even find those locational, quality, and time-based opportunities when volatility is fairly low. It's the assets that we have in place, but it is enhanced by the processes and capabilities the team now has in place.As a result, we're going to adjust our long-term run rate to be between $80 million and $120 million per year or $20 million to $30 million per quarter. In the fourth quarter, we expect to be at or just above the upper end of that range. While marketing will benefit from realizing the gains from financial instruments that was unrealized at the end of this quarter. We are seeing headwinds for refined products with asphalt pricing notably weaker, in part, due to European products being brought in, into the North American market.Also, on the distillate side, as a result of noticeably lower joint demand in Canada, we have focused our sales in the U.S., where we realize a bit lower margins, in part, due to higher transport costs.In summary, the third quarter was above our internal expectations. Infrastructure was slightly above, where we thought it would be. And marketing was able to beat our outlook.As I just spoke to, it's not something we count on, but that little extra will help fund -- will help further charge the balance sheet; and down the road, fund capital.Importantly, we continue to check all the boxes in our governing financial principle. We remain fully funded for all our sanctioned capital, with payout and leverage well below target levels and we are now fully investment grade, which was one of our major goals.We are in a strong position and that strength will continue to build as we place additional infrastructure into service over the coming quarters.At this point, I will turn the call over to the operator to open up for questions.

[Operator]

[Operator Instructions] Our first question comes from Rob Hope with Scotiabank.

[Robert Hope, Analyst]

Maybe to start off on Steve's comments on conversations with customers regarding additional tankage opportunities. So, can you just add a little bit more color there? Are you looking to finish off the top of the hill, which would be 2 additional barrels at Hardesty? Would it be something larger than that? Or would it be something at Edmonton, which could be tied to TransMountain?

[Steven R. Spaulding, President, CEO & Director]

It's not Edmonton at the current time. This is the pipeline negotiate -- or the tankage negotiations that we have going on currently are with -- are well advanced with 2 parties. One would be at -- one would hope to do -- build those 2 tankage at the top of the hill and then the other is a different location within our terminal. Just recently our engineering group has developed an opportunity to expand the top of the hill to anywhere from 1 million to 2 million barrels, which really -- in these -- when we're building out a, as I said in the past, when we're building out a platform those final tankage are in that 5x EBITDA range. And we were in the --

[Robert Hope, Analyst]

And then as a follow-up just maybe in terms of the DRU opportunity at the rail terminal. Want to get a sense of potential capital there. And when you're talking to customers, what is the main, kind of, concern there? Is it the market for neat bits or a new pipelines coming on to service, just want to get a better sense of that opportunity?

[Steven R. Spaulding, President, CEO & Director]

Yes, we really haven't shared, Rob, on the actual amount of capital. Obviously, that's a joint venture between us and USD. When we're talking to customers, we're talking to both refining customers and producing customers. This is a very complex transaction in that not only the DRU is involved, rail road [ interop ] facility is involved, long-term rail contracts, and then the unloading facility, and then the access to the market. And so it's a -- there's probably 13 different agreements that would have to be executed to actually make this happen. And so, these are very complex transactions and we're well down the road. But I can't stress how complex each transaction -- each contract really is.

[Operator]

Our next question comes from Robert Catellier with CIBC Capital.

[Robert Catellier]

Just a couple of follow-up questions here. I am wondering what you've seen in terms of customer demand and behavior since the rail exemption was provided to the production curtailments last week?

[Steven R. Spaulding, President, CEO & Director]

Well I mean, we haven't had a lot of time to digest that, neither has the customers. We did -- we had heard kind of that this may happen. Obviously, this is a big positive for us at Hardisty and at Edmonton. And our rail terminals at Edmonton and Hardisty -- and our -- and then at HURC at -- and I think, it does give us an opportunity. I know that we went to -- or we are expanding to 3.5 unit trains a day, there at Hardisty. We'll look to potentially push that another half a unit train potentially. And let's see if there's other opportunities to continue to expand rail capacity. Because we think this is one way that our producers can develop their long-term reserves.

[Robert Catellier]

As you've ventured into the U.S., looks like you've had some initial success. And as you look to expand that footprint into tankage, what are the real differences into the commercial profile of tank agreements in the U.S. versus those in Canada? Are they substantially different or do you expect returns largely the same as what you're getting in Canada?

[Steven R. Spaulding, President, CEO & Director]

They are substantially different type of transactions, and when you think about our assets at Hardisty. At Hardisty, generally, our customers are really the large integrated upstream oil sands producers. And they use our assets as operating storage as they launch down into the States either on their egress pipelines or through our rail terminal. When you look at the tankage that we're looking to build in the States, it is the producers but generally, it's more the long-haul shippers on the pipeline. And so in the States you've got, there at Wink, you've got numerous, numerous pipelines being built into Wink and out of the Wink area. And you have extremely -- there is this -- and there is an extreme excess of pipeline capacity. So, they reach all different markets from Corpus to the Houston ship channel; to Vermont, which allows you to get all the way over even into the river corridor. So the people that we're talking to generally are those long-haul shippers that want access to supply and want access to multiple markets.And the contracts around that are in the 5 years. But the one thing we are seeing is a 5x type of EBITDA built around there to get at least our payback in the first 5 years.

[Robert Catellier]

Okay. So, it's sort of similar to the pipeline, it's just a different market, different contract structure?

[Steven R. Spaulding, President, CEO & Director]

Yes, it's a -- yes, they'll definitely take a pay lease agreement like all storage. But the storage is not overbuilt. It's what's -- what we believe is overbuilt is really the pipeline capacity right now. And so which is a giant sucking sound in that area for supply.

[Robert Catellier]

Okay. And then my last question is on your tank outlook for 2 to 4 tanks, that hasn't changed in a while. I am wondering what you're assuming in there for IMO 2020 or if you view that as some potential upside?

[Steven R. Spaulding, President, CEO & Director]

IMO 2020 would probably more effect our Edmonton terminal and some potential small tankage around the refined products business, right now, Robert.

[Operator]

Our next question comes from Ben Pham with BMO Capital Market.

[Benjamin Pham, Analyst]

I wanted a pop on the DRU conversation and some of the questions. And when you -- I guess, you characterize this as advanced discussions. So, one counterparty -- just wondering, how do you guys think about a strategy around the contracting on DRU, do you expect a 100% contracts per sanctioning? And is it correct to think that you've really kind of [indiscernible] the tolling fee and duration and now it's really just Board approvals and all those -- all these different [indiscernible] different contracts that you got to deal with?

[Sean M. Brown, Senior VP & CFO]

So, a couple of questions there. But what I would say is, it will be backed up by 100%. So this is not, sort of, partial commitment to secure it. If it goes ahead, we'll have the back stopping that we require. As Steve alluded to in the Q&A, there's a number of different contracts here. The negotiations are very live, I think, as he said, quite advanced. And we remain very optimistic. But we are not going to characterize exactly, where that stands in the negotiations vis-a-vis, is it just waiting for a stamp of approval of the Board versus how much is left to be done. I mean, I think, our overarching comment would be that we continue to advance it. We remain optimistic. But as Steve alluded to, there is a number of contracts.

[Steven R. Spaulding, President, CEO & Director]

And this is long-term contracts. So this is that 10-year type of contracts for these type of assets?

[Benjamin Pham, Analyst]

So is this consistent with just, kind of, how you think about tankage? And then maybe just when you think about so this un-levered balance sheet marketing numbers proving higher, I guess I mean, you could potentially self fund this DRU project, can you comment on that? And then how does dividend growth kind of fit in as you have 2 million tanks in November?

[Sean M. Brown, Senior VP & CFO]

Yes again, 2 different questions. I'll say on the self funding, we've always talked about -- or more recently talked about it, sort of, being right now self funded and that's sort of $250 million circ amounts of capital. We're right now, finalizing our capital plan for 2020, as you would have seen in our press release. In Steve's quote, he commented on being very confident of $200 million to $300 million. As always, we will come out with our capital in December. So we'll refine our funding thoughts at that time. Certainly, to the extent that we do remain self funded even with the DRU that would be the goal. But it's going to depend really in and around how we refine that final piece of capital. With respect to dividend growth, really not -- nothing has changed there from a messaging perspective or a capital allocation perspective. From a capital allocation perspective, our priority is going to be allocation to new growth projects, if they continue to come in at this 5x to 7x multiple with long-term contracts, with high quality investment grade counterparty.So, if we have an ability to deploy capital there, we think that's the best return to shareholders. To the extent that we have excess capital above that, and it's from the tankage side, as you allude to, we would be biased towards a modest dividend increase. But again that's completely at the discretion of the Board. And we'll review that in Q1, as we always have historically. To the extent that, that excess cash flow comes from the marking business and above growth capital opportunities then we [ are biased ] say share buyback in that event. So again, we're going to revisit the dividend in Q1, with the Board, and we'd expect more of an update then.

[Operator]

Our next question comes from Jeremy Tonet with JP Morgan.

[Jeremy Bryan Tonet, Senior Analyst]

Just want to start off with the marketing side here and the uptick that you had in the guidance as what you thought is kind of more normalized. Provided a good color there, I appreciate that. But was just wondering if you could kind of walk us through maybe 1 or 2 examples of what has materialized to be better than what you originally expected when you laid out the guidance before?

[Steven R. Spaulding, President, CEO & Director]

So when we laid out our guidance before, we had, we have an earnings train that we track on a daily basis out of our marketing organization. And so, what we do is, we sit down with our marketer at that time and -- in the marketing organization and get a projection from them to help, kind of, provide you all with an outlook. Probably what occurred is, some opportunities on the quality emerged in that in the last 2 months of the quarter that we were not anticipating. Since that time those opportunities have faded away. But other opportunities, such as the wider spread between WCS and WTI have emerged. So things change really on a monthly basis, when it comes to what drives that marketing organization. And what a good organization does is makes money in really all environments. And I think, our team is starting to get more consistent at that.

[Operator]

Our next question comes from Linda Ezergailis from TD Securities.

[Linda Ezergailis, Research Analyst]

I don't know if this is a follow-up question maybe from what you were describing to Jeremy. But can you comment on specifically, how this Keystone outage might affect your business, if at all, in Q4 or beyond? And I would be interested in that context.

[Steven R. Spaulding, President, CEO & Director]

Any volatility in a marketing organization creates opportunities. So the Keystone going up, Keystone coming back on, all of that is volatility. That gives them opportunity to either lose money or make money in the market. And we have a very disciplined organization, and so, we hope that the opportunities will materialize. Some additional opportunities will materialize in December. But other opportunities that we gathered on throughout the year have faded away.

[Linda Ezergailis, Research Analyst]

And just as a follow on, can you comment on what sort of opportunities are emerging and growing in -- on your U.S. marketing business?

[Steven R. Spaulding, President, CEO & Director]

Well, our U.S. marketing business is really quite small. And it is very much just associated with the small business that we have. And that we're bringing on, on the producer services side. We don't have the tankage, and the connectivity, and the infrastructure, and the market complexity that we have -- and position that we have in Canada.

[Linda Ezergailis, Research Analyst]

And maybe just also, furthermore, on your DRU opportunity. Can you comment on what the range of ownership, Gibson might own, on various components of the DRU might be versus your USD partners, JV partner? And -- or would it be the same level of ownership in all pieces of it? And maybe comment on, if there is any sort of logistical considerations as well that need to be worked through on the site itself or some more details on the design aspect, if there is any considerations on or complexities on that front?

[Sean M. Brown, Senior VP & CFO]

Thanks, Linda. I'll start this certainly. So it's basically 50:50 split with USD at the DRU. So we would be equal partners there. To the extent that there is anything required within our fence line that would be 100% Gibson, but that's a smaller part of the overall project.It's the ownership of rail facility itself, which obviously is integral to the DRU that doesn't change the relationship we have with USD. And then anything downstream of that would either be USD or whatever the downstream option is for the client of the DRU.From a complexity perspective, not really with respect to in around the DRU in the rail facility. I think this is all something that's obviously been investigated thoroughly and we are comfortable with. I don't know, if there is nothing new to add from the complexity side, Steve.

[Steven R. Spaulding, President, CEO & Director]

Well, you got to think it inside the term -- inside the fence and outside the fence. So inside the fence would be the DRU itself the diluent recovery itself. Outside the fence would be the piping to and from the tankage, the heated pipes, probably that's almost a 2/3 outside the fence 1/3 inside the fence. Everything outside the fence we very much understand. And we have built these assets over and over again in Hardisty.Inside the fence, we're probably going to look at an [ EPC ] firm to come in and just turnkey that and take all that risk of performance and cost overruns away.

[Linda Ezergailis, Research Analyst]

So is it reasonable to say that beyond just kind of figuring out your inside the fence and that turnkey contract, you're really just working through processes? And maybe some of the commercial details are really what is taking the most time?

[Steven R. Spaulding, President, CEO & Director]

There's really nothing on that, on the engineering side. That -- this is to me, a very simple trend -- well, a simple process. I've been involved in fractionation and separation and cyclization my whole career. And this is probably one the easier assets I've seen as far as buildings. And so, this is not an issue. Probably the complexity really is, I listed the 13 potential agreements, so how do they inter react -- how do they act with each other. Not the individual agreements themselves. It's really how do the other agreement all act together.

[Operator]

Our next question comes from Andrew Kuske with Credit Suisse.

[Andrew M. Kuske]

Given the balance sheet you've got now and your access to debt markets, and the cash that you're just sitting on, you've got a bunch of optionality. But how do you think about allocation of capital into greenfield, brownfield and then potential acquisition opportunities? What are the real return thresholds you're really looking for in a profile on those returns?

[Sean M. Brown, Senior VP & CFO]

I mean nothing has changed. I'd say, we don't have nearly as much cash in the balance sheet, because post the quarter we did pay down our 2022 note so the, sort of, 345 odd we had, it was just parked there given the 30 day call period.But the answer to the question is, and we've said this a number of times, the move to investment grade, the leverage profile we have, it really doesn't change how we think about invested capital. We remain very disciplined on focusing on those projects at that 5 to 7 build multiple backstop by long-term contracts with high quality counterparties. The quality of cash flow is absolutely important to us. So that would be either greenfield or brownfield.I think we'll do something like the DRU, which would absolutely fit into that as being more of a brownfield project given our Hardisty asset. But really hasn't changed and our view on M&A hasn't changed either. If we think about the opportunities that we have on our growth capital perspective, we don't really see the need for M&A. Within our strategy, we feel like we have clear visibility into those high quality projects to deliver the 10% circa cash flow growth per year that we've talked about. So that allows to be extremely disciplined as we think about M&A.So having a balance sheet that's fully charged really doesn't change that view at all. And we remain extremely disciplined as we think of it to pulling that capital.

[Andrew M. Kuske]

And then maybe just focusing a bit more on the brownfield opportunities you have. What's the quantification of the brownfield opportunities just within your core asset base in Alberta is, are we talking $0.5 billion, $1.5 billion that kind of ballpark that you have a good line of sight on at this stage?

[Sean M. Brown, Senior VP & CFO]

I mean, as I said earlier, we're going to come out with our capital guidance in December. I think, if you looked at our investor presentation, we outlay what we expect to deploy annually, with it being sort of that 100 to 150 per year on the tankage side or in around the tankage 50 to 100 in the U.S. 50 outside the fence that obviously wouldn't include the DRU. As we sit here today none of that changes. Steve talked about it, so in Steve's quote, within his press release, 200 million to 300 million, to the extent that the 2 to 4 tanks continue to materialize, which we very much still think it will. You can move that capital forecast forward for however many years you want to. I mean, we never really provide guidance beyond the next year, just given the nature of our contracts.What I would say from a brownfield perspective, we remain very confident in sort of what we've talked about previously. And as I said, we'll update that in more detail, with the specific capital guidance in December, as we always do.

[Operator]

Our next question comes from Robert Kwan with RBC Capital Markets.

[Robert Michael Kwan, MD & Energy Infrastructure Analyst]

I guess just kind of starting with some of the benefits of having low leverage on the balance sheet. Just wondering, with that low leverage and the high degree of confidence you seem to have, in both tank contracts to the end of the year and then into next year. Just wondering, what's your willingness to prebuild some of that tankage, especially for customers that might want it a little bit quicker?

[Sean M. Brown, Senior VP & CFO]

I think, philosophically, Robert, if you think overall, the view hasn't really changed. We'd like tankage to be backstopped by long-term contracts before sanctioning it.We've talked about it previously. The one instance, where we would consider that, would be if there's material synergies from building more than 1 tank or multiple tanks at once.So to the extent that, if you think of sort of up at the top of the hill, or a new zone, if we have 1 or multiple tanks backstopped, and building further tanks or a further tank in conjunction with that, results in material cost savings.And doing it the same time, that is something that we would consider. But I think overall, our philosophy hasn't changed, where we'd love to have tank sanctioned prior to building.

[Robert Michael Kwan, MD & Energy Infrastructure Analyst]

And then on the dividend, you had mentioned if marketing exceeded the range, you'd probably look to share buybacks first. But I'm also wondering, with leverage well below 4x, is there a low end, where you can really think about taking the interest savings from that -- the deleveraging that you've had to date, and then deliver that as dividend growth?

[Sean M. Brown, Senior VP & CFO]

That's an interesting question on the interest savings. I think I would look at it as an overall funding profile, as both a specific to the interest savings. I mean, there's been other savings, if you think about our cash flow conversion from EBITDA to distributable cash flow just beyond that.Like, if you look at our maintenance capital from 2016, it would have been multiples of what it is now, just given the nature of our business. So, I don't think you can focus specifically on the interest savings.We did [ accept to ] have been in around that 2.5x for -- certainly from tail end of '18 through to now. The real question is, what does a funding plan look like, as we move forward? And the other part is, as you think about that 2.5x, we still do have our target of being 4x or less then in infrastructure-only basis. So, notwithstanding the fact that we're 2.5x, which is well below our targeted range, we are in -- right in around that 4x, as we sit here today in an infrastructure-only basis.With respect to the dividend question specifically, as I said earlier, this is something that we'll discuss with the Board. And that'll be more of a focus as we think about Q1 and look at our overall cash flow and capital forecasts at that time.

[Robert Michael Kwan, MD & Energy Infrastructure Analyst]

If I can just finish with a follow-up here on just as philosophically how your management team thinks about the dividend? If you start growing the dividend, is philosophically, what you want to do regular annual increases or are you're okay with sporadic increases, depending on the capital situation?

[Sean M. Brown, Senior VP & CFO]

Again, this is something that's ultimately at the discretion of the Board. But I think our bias would be to the extent that we start a modest dividend increase. This is something that we can hopefully deliver annually in conjunction with delivering new infrastructure, new tanks and new infrastructure projects annually.

[Operator]

Our next question will come from Patrick Kenny with National Bank Financial.

[Patrick Kenny, Managing Director]

Appreciate all the color on the 80 to 120 outlook for marketing. But just curious, your thoughts on what sort of heavy oil differential environment would underpin those bookends? Sounds like the current $22 a barrel represents a bit of upside to the top end of that range, but just curious if the 80 to 120 was pegged to any differential environment?

[Steven R. Spaulding, President, CEO & Director]

I mean, this year's been a -- we've seen, obviously, changes throughout the year, where we've traded at a minus $11 for numerous months, until just recently, where we've seen it go up to minus $20. So, and we've been able to -- the marketing teams been able to make money in really all of those environments, even with a lower crude oil price, in that $55 range, really kind of throughout the whole period.So at the end of the day, a higher spread obviously, positively, impacts our Moose Jaw facility, because the products that we make there are really marketed into the U.S. via rail, and specialty type products. So a higher spread there is very beneficial.What happened throughout most of the year, one of the big benefits of having a Moose Jaw facility is, when we looked at the beginning of the year, you had $24 to $26 forward months spreads.Even though you were trading at minus $11, you had second -- you had third and fourth quarter straight into $24 -- $20 to $24. We locked in some of that for our Moose Jaw facility and then realized that on the hedge gain across the year. Where the facility itself didn't benefit, because it lived in the live environment of the minus $11.

[Patrick Kenny, Managing Director]

And then with the new outlook here for marketing, Sean, just curious if you had a refresh on cash tax guidance for the year-end, maybe into 2020?

[Sean M. Brown, Senior VP & CFO]

No, not at this time. I mean, I think philosophically, we'd look at the same way, where our infrastructure business, given the capital spend we had, is not significantly cash taxable.And you can think about our marketing business being largely cash taxable. So, if looking to build into your model, so the guidance I would give is, sort of, increase your cash taxes commensurate with the increase in marketing guidance.

[Patrick Kenny, Managing Director]

And then last clean-up question here. Just was curious if there's any update on the $15 million provision at Hardisty, or any update on the statement of claim there?

[Sean M. Brown, Senior VP & CFO]

No. That's going to be a long-term. And so, when we did that statement of claim that was really looking out over the next 20 years, what we think that -- that may result in us, on as far as, potentially, to keep that contained.And of course, we are trying to recover those costs, but we do think that'll be a very long process.

[Operator]

Our next question will come from Ian Gillies with GMP.

[Ian Brooks Gillies]

With respect to the DRU, you'd highlighted a build timeline of, I believe, about 28-months, last quarter. Has anything changed within your due diligence since that time to alter the construction timeline outlook?

[Sean M. Brown, Senior VP & CFO]

Yes, I'm not thinking, I'm not sure where the 28-months actually came from. I think I saw that out there. Build timeline, we would think would be actually a fair bit lower than that. We think of it as being more in the sort of 18-months range.So we had never put out the 28 months specifically. And yes, overall, I think we think the build time as being circa 18 months. So think of mid-2021, in that range COD, if it's progressed prior to the end of the year.

[Steven R. Spaulding, President, CEO & Director]

And we do continue to -- as we're in these negotiations, that's not impacting really our ultimate timeline right now. Because where we are in the process we are, we do have some back -- we have backstops in place to continue to develop opportunity.

[Ian Brooks Gillies]

And I apologize if I missed this during the prepared remarks. As you think about EPC contracts and building the facility, is this the type of project that you could get built lump sum, or is it going to be cost plus, or how do you envision that piece working?

[Steven R. Spaulding, President, CEO & Director]

Yes, and I've tried to explain that. We think inside the fence, which is the facility itself, we can box in and we can do a lump sum and take all the risk out of that and get performance guarantees on how it operates.Outside the fence, which is probably the majority of the cost, so the largest piece of the cost is really something we understand quite well, which is building pipelines and tankage.

[Ian Brooks Gillies]

Sean, with respect to maintenance capital, I mean, it's trending, I guess, towards low end of guidance this year. I mean, should we be expecting any sort of catch up in Q4 or should we -- what sort of run rates should we be thinking about there?

[Sean M. Brown, Senior VP & CFO]

No. No, catch up in Q4. I think, as you said, we're trending certainly to the lower end of our range. As you're aware, with the evolution of the business we've had, our maintenance capital is primarily Moose Jaw and tank turnarounds that we have.So guidance is in the, sort of, circa $20 million to $25 million range. It looks like we're going to come in the low end of that for this year. We're going to come out with our formal capital budget in December, but I expect the guidance for next year will probably be very similar to this year, in the $20 million to $25 million range.

[Operator]

And our next question will come from Elias Foscolos with Industrial Alliance Securities.

[Elias A. Foscolos, Equity Research Analyst]

I've got a few questions focused on Moose Jaw. To start with, I believe initially, Moose Jaw, you were looking at a CapEx to EBITDA type multiple of 2% to 4% just overall, I know it's early with the expansion, how is it trending?

[Steven R. Spaulding, President, CEO & Director]

Yes, I think that was actually 1 to 3, right. I would say, we're running right at that 22,000 barrels a day. I think in that -- when we turn the facility, we're going to turn the facility around again in March, and going to install some minor equipment, which we believe will allow us to expand that some more. We don't know exactly how much right now. But we do believe there is some expansion opportunity with really some minor construction. And we're looking for other opportunities to continue to deploy those 1x to 3x multiples in the facility. But these are relatively small capital projects probably less than $10 million.

[Elias A. Foscolos, Equity Research Analyst]

And thanks for that correction, because I was going a little bit from memory. Again, focusing on the increase in marketing guidance, would you attribute maybe half of that to Moose Jaw? I'm just trying to get a handle on the increase. And once again, the Moose Jaw impact or is that too aggressive of an estimate?

[Sean M. Brown, Senior VP & CFO]

I wouldn't look at it like we're not going to get that specific. I think as we looked at the marketing business and, I think, there's 2 things. One of them is a nomenclature of philosophical, a thing as we had put at the 60 to 80 at our January 18, Investor Day. As we noted in our prepared remarks, we really viewed that as being, sort of, a conservative downside number. What we discovered, as we move through, is people really were looking at that as more of 350 or an average number. And so, we definitely wanted to move that up because as we've said, sort of, certainly in meetings and on previous calls, our expectation was always that we would get at least that mid-cycle number. As we think about what we are doing now, it's really twofold. One being we did expand the Moose Jaw facility, which expands the earning potential of refined products side.But the second is just that our crude marketing business is different than it was previously. And as it's proven that it's just has a stronger ability to earn profits. So, I wouldn't necessarily say, it's 50% Moose Jaw, 50% crude marketing because in any given quarter, it could be a different mix amongst the 2, so. I think it's just more an overall view of the earning potential of that business and what we think we should be able to do over the long-term.

[Operator]

I'm showing no further questions in the queue at this time. I would like to turn the call back over to management for any closing remarks.

[Mark Chyc-Cies]

Thanks, everyone, for joining us for our third quarter conference call. Again, I would like to note that we have made certain supplementary information available on our website, gibsonenergy.com. Also, as we discussed, as in prior years, we'll be releasing our 2020 budget in early December. In the meantime, if you have any further questions, please, reach out to us at [e-mail]. Thank you and have a great day.

[Operator]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.