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Tidewater Midstream First Quarter 2021 Results

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   |    Thursday,May 13,2021

Tidewater Midstream and Infrastructure Ltd. reported its Q1 2021 results.


  • The first quarter of 2021 represented Tidewater’s eighth consecutive quarter of Adjusted EBITDA growth. This performance continues to highlight the resiliency and stability of its integrated business model. Adjusted EBITDA increased to $51.1 million in the first quarter of 2021 as compared to $41.5 million in the first quarter of 2020, resulting in 23% Adjusted EBITDA growth. Adjusted EBITDA also increased by $2.3 million as compared to the fourth quarter of 2020 resulting in 5% Adjusted EBITDA growth. Net income attributable to shareholders was $8.4 million for the first quarter of 2021 as compared to a net loss of $38.1 million in the first quarter of 2020. This increase is the result of unrealized gains on derivative contracts and increased operating income driven predominantly by higher commodity prices.
  • Net cash provided by operating activities totaled $55.5 million for the first quarter of 2021, with distributable cash flow of $16.9 million and a payout ratio of 20%.
  • Tidewater continues to evaluate multiple financing options for its renewable initiatives including its proposed 3,000 bbls/day renewable diesel and renewable hydrogen facility for which the Corporation has received approximately $100 million in BC Government support for the total $215 to $235 million capital cost. The financing options being pursued would not add incremental leverage to the Corporation. Tidewater has a vital role to play in the long-term renewable energy transition in Canada and is currently developing clean fuels through its existing hydrogen and carbon capture assets, its ability to blend ethanol and renewable diesel and its current canola co-processing project. Tidewater is also evaluating opportunities in various renewable energy initiatives including renewable diesel, co-processing, renewable hydrogen, blue hydrogen, renewable natural gas, carbon capture and other renewable energy projects.
  • The Corporation, together with its partner TransAlta Corporation (“TransAlta”), continues to move forward with the sale of its Pioneer Pipeline to ATCO Gas and Pipelines Ltd. (“ATCO”) for gross proceeds of $255 million (the “Pioneer Transaction”). Net cash proceeds to Tidewater are anticipated to be approximately $135 million which includes certain ancillary assets and completion of budgeted restoration work to be paid for by TransAlta. The transaction is subject to customary conditions for a transaction of this nature including regulatory approvals by the Alberta Utilities Commission (“AUC”) and the Alberta Energy Regulator. Regulatory approval is anticipated in the second quarter of 2021.
  • Tidewater’s top priorities remain free cash flow generation and debt reduction. Tidewater is committed to reducing leverage throughout 2021 with a target of 3.0x to 3.5x Net Debt to annualized Adjusted EBITDA, subsequent to the closing of the Pioneer Transaction.
  • Tidewater is optimistic in its outlook for global energy demand as commodity prices strengthen. Within Western Canada, Tidewater continues to see strong demand at PGR as a result of large infrastructure projects in central and northern British Columbia. Throughput at PGR remains strong at over 12,000 bbls/day with combined gasoline and diesel production over 10,500 bbls/day. The PGR crack spread, a measure of refining margins, continues to be strong going into the second quarter at approximately $60/bbl. The Pipestone Gas Plant again had its strongest quarterly run times and cashflow generation to date during the first quarter of 2021.
  • The Corporation is committed to its Environmental, Social and Governance (“ESG”) performance.

Outlook & Corporate Update

Tidewater is pleased to deliver a record quarter of EBITDA generation in the first quarter of 2021 as the Prince George Refinery and Pipestone Gas Plant continue to run at high utilization rates. Continued consolidation and new investment in the energy sector, as well as a material recovery in commodity prices, has had an overall positive impact on producer balance sheets and Tidewater continues to work with its producer customers on ways to improve margins and related service offerings. Tidewater remains positive about the outlook for commodity prices in the second half of 2021. There is increased investor interest in the energy transition and renewable sectors, where Tidewater is uniquely positioned to play a key role in the continued development of renewable fuels, carbon capture, renewable natural gas and renewable hydrogen.

Tidewater remains committed to reducing leverage with the anticipated $135 million in proceeds from the Pioneer Transaction used primarily for debt repayment. A large portion of Tidewater’s cashflow is generated from take-or-pay contracts and long-term agreements with over 50% generated from investment grade counterparties. Tidewater remains committed to its target of 3.0x to 3.5x Net Debt to annualized Adjusted EBITDA, subsequent to the closing of the Pioneer Transaction.

Prince George Refinery

PGR is a 12,000 bbl/day light oil refinery that predominantly produces low sulphur diesel and gasoline to supply the greater Prince George region. PGR has significant onsite storage capacity of greater than 1.0 MMbbl and flexible logistics, with pipeline, rail and truck connectivity in place. The Prince George region is generally in short supply of refined products and the refinery’s location within the region makes it a critical piece of infrastructure with a significant logistical advantage to address demand in northern British Columbia.

PGR has significant advantages given its location as the Prince George market faces logistical and economic challenges given transport costs and the lack of offloading facilities in the area. Additionally, the refinery supplies the majority of the regional demand, which is comprised of major local industries such as forestry, mining and oil and gas.

During the first quarter of 2021, total throughput exceeded the refinery’s nameplate capacity at approximately 12,095 bbl/day, consistent with the fourth quarter of 2020 and 4% higher than the first quarter of 2020.

PGR will be executing its planned annual maintenance during the second quarter of 2021, which will reduce refinery throughput by approximately 5% below the first quarter average.  As a result of the annual maintenance program, spring breakup and increased COVID restrictions in both BC and Alberta, Tidewater expects second quarter earnings at PGR to be moderately lower than the first quarter.

Tidewater’s refining margins are largely driven by commodity prices, particularly the cost of crude feedstock and other raw materials, along with market prices for refined products. During the first quarter of 2021, Tidewater realized improved margins on both diesel and gasoline due to improved refined product pricing. Demand for both gasoline and diesel increased during the first quarter of 2021 due to increased activity in the Prince George area with crack spreads averaging $60/bbl during the quarter. This demonstrates the refinery’s long-term value in servicing the markets in which it operates.

Tidewater is progressing on its canola co-processing project and expects it to be online in late 2021. The project is supported by the BC provincial government and will produce both renewable gasoline and renewable diesel which generate BC low carbon fuel standard (“LCFS”) credits. The Corporation continues to evaluate various renewable initiatives at PGR. These include expanding existing hydrogen assets, renewable hydrogen and the potential for a large-scale renewable diesel project with current support from the BC provincial government. Renewable diesel results in an approximate 80% – 90% reduction in greenhouse gas (“GHG”) emissions compared to conventional diesel and performs better in colder temperatures as compared to biodiesel. Tidewater continues to pursue numerous low capital and high rate of return debottleneck and optimization opportunities within its downstream business unit.

Pipestone Gas Plant

The Pipestone Gas Plant is designed to process approximately 100 MMcf/day of sour natural gas. This asset includes two acid gas injection wells, a saltwater disposal well and sales gas pipelines directly connected to the Pipestone Gas Storage Facility, as well as the Alliance and NGTL pipeline systems. The facility is also pipeline connected to Pembina’s liquid gathering system for the C2+ and C5+ liquid streams.

The Pipestone Gas Plant processed an average volume of 83 MMcf/day in the first quarter of 2021, a 32% increase from Q1 2020 and an increase of 13% from Q4 2020. Facility availability for the quarter averaged 85%, an increase of 8% from Q4 2020. Plant throughput was strong in January and March, averaging approximately 90 MMcf/day, but was affected by below average colder weather conditions in February. The Pipestone Gas Plant is fully contracted with over 80% committed capacity on take-or-pay arrangements.

Pioneer Pipeline

The Pioneer Pipeline is currently jointly owned and operated by Tidewater and TransAlta. The asset is held for sale, subject to closing of the Pioneer Transaction which is subject to customary conditions in a transaction of this nature including regulatory approvals by the AUC and the Alberta Energy Regulator. Following the execution of the purchase and sale agreement, the parties filed applications for regulatory approval. Final regulatory approval is anticipated in the second quarter of 2021.

Upon closing the Pioneer Transaction, the Pioneer Pipeline will be integrated into NOVA Gas Transmission Ltd.’s (“NGTL”) and ATCO’s Alberta integrated natural gas transmission systems to provide a reliable natural gas supply to TransAlta’s power generating units at Sundance and Keephills.

Tidewater has entered into a Project and Expenditure Authorization Agreement with NGTL at the Rat Creek West Meter Station for the natural gas liquids extraction service (OS-Ext) that will allow Tidewater to extract higher value liquids from the natural gas stream prior to delivery of natural gas at the TransAlta facilities. Tidewater does not expect any facility modifications or capital expenditures to be required to implement this service. It is expected that with this service, Tidewater will be able to materially increase throughput at its Brazeau River Complex, subject to market conditions. It is anticipated that this service will commence concurrent with the close of the Pioneer Transaction.

Brazeau River Complex and Fractionation Facility

The BRC is a core asset for Tidewater, offering a full suite of services to producers, including C2, C3, C4 and C5 pipeline connections, NGL fractionation capacity, sweet and sour deep-cut gas processing capability, truck loading and offloading facilities, natural gas storage facilities and three natural gas egress solutions including the NGTL system, the Pioneer Pipeline, and gas storage.

NGL volumes through the fractionation facility increased by 450 bbl/day, compared to the fourth quarter of 2020. The facility continued to perform well throughout the quarter despite the colder seasonal temperatures through the month of February.

Throughput at the BRC gas processing facility averaged 125 MMcf/day, resulting in the highest raw gas volumes since 2018. Strong AECO gas prices in the past six months have increased producer activity near the BRC, and Tidewater continues to look for opportunities to increase third party plant throughput.  Tidewater works diligently with producers to improve netbacks by fully utilizing the BRC’s facilities.

Natural Gas Storage

Tidewater operates natural gas storage reservoirs at three different facilities: Dimsdale Paddy A (Pipestone Gas Storage Facility), Brazeau Nisku F and Brazeau Nisku A. The Pipestone Gas Storage Facility and Brazeau Nisku A are owned through joint ventures with a private Canadian entity and are accounted for as equity investments.

All three storage facilities continued to withdraw in the first quarter as we moved through to the end of the traditional winter withdrawal season. The Pipestone Storage facility delivered its highest withdrawal rates of any quarter (exceeding 60,000 GJ/day) in early January with deliverability rates gradually decreasing as the facility depressurized.

Similarly, both Brazeau Nisku A and Brazeau Nisku F storage pools continued to withdraw through the period, helping meet Pioneer Pipeline demand and realizing liquids extraction value.

Consistent with the rest of the continent, the Alberta natural gas market saw heightened price volatility in mid-February corresponding with cold temperatures. Operationally, all storage facilities performed well through the period and successfully met all delivery obligations as daily prices approached $6.00/GJ.  Volatility was less pronounced in January and March with cash prices generally trading in the $2.30/GJ to $2.90/GJ range.

The Pipestone Gas Storage Facility is fully contracted with take-or-pay contracts spanning through 2027 with multiple investment grade counterparties. The facility represents a significant contribution to Tidewater’s fee-for-service gas storage business and offers producers at the Pipestone Gas Plant significant optionality where the plant has three egress solutions including connections to the TC Energy and Alliance systems and gas storage.

Capital Program

Tidewater’s 2021 capital program focuses on small-scale optimization projects along with its canola co-processing project at PGR. To date, Tidewater has not committed to a significant capital program in 2021, however continues to evaluate smaller capital projects with strong short-term returns on investment.

Tidewater’s 300 bbl/day canola co-processing project at PGR is expected to be online in the fourth quarter of 2021 which will produce both renewable diesel and gasoline. Total capital for the project is approximately $10 million and includes significant support from the BC government.

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