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Tidewater Midstream Third Quarter 2020 Results

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   |    Thursday,November 12,2020

Tidewater Midstream and Infrastructure Ltd. reported its Q3 2020 results.


  • The Corporation delivered a record quarter and its year-to-date performance continues to highlight the value and resiliency of its integrated business model. Adjusted EBITDA increased to $47.6 million in the third quarter of 2020 as compared to $25.5 million in the third quarter of 2019, resulting in 86% Adjusted EBITDA growth as a result of the continuing strong performance of the Prince George Refinery (“PGR”) and the Pipestone Gas Plant. Adjusted EBITDA also increased by $5.7 million as compared to the second quarter of 2020 resulting in 14% Adjusted EBITDA growth. Net loss attributable to shareholders was $2.0 million for the third quarter of 2020 as compared to net income of $11.0 million in the third quarter of 2019. The decrease is a result of a non-cash loss on disposition of certain non-core assets.
  • Net cash provided by operating activities totaled $64.0 million for the third quarter of 2020, with distributable cash flow of $10.6 million and a payout ratio of 32%.
  • On October 1, 2020, the Corporation, together with its partner TransAlta Corporation (“TransAlta”), entered into an updated purchase and sale agreement with ATCO Gas and Pipelines Ltd. (“ATCO”) to sell the Pioneer Pipeline to ATCO for gross proceeds of $255 million under substantially similar terms to the previously announced transaction with NOVA Gas Transmission Ltd. (“NGTL”) (the “Pioneer Transaction”). ATCO acquired the right to purchase the Pioneer Pipeline through an option agreement with NGTL. Net cash proceeds to Tidewater will be approximately $138 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 in a transaction of this nature including regulatory approvals by the Alberta Utilities Commission and the Alberta Energy Regulator. Regulatory approval is anticipated in the first quarter of 2021 and Tidewater remains proactive in its efforts to accelerate this timeline.
  • Tidewater’s top priorities remain free cash flow generation and debt reduction. Tidewater remains committed to reducing leverage throughout 2020 and 2021 with a target of 3.0x to 3.5x Net Debt to annualized Adjusted EBITDA, upon closing of the Pioneer Transaction.
  • While the Corporation’s volumes across its operations have returned to pre-pandemic levels, financial markets and commodity prices continue to remain volatile and are expected to remain volatile into 2021. Tidewater continues to see increased demand at PGR as a result of large infrastructure projects in central and northern British Columbia resulting in a stronger market for refined products. PGR continues to see record throughput, at times exceeding 12,000 bbls/day and combined gasoline and diesel production from PGR of over 10,500 bbls/day.
  • The Corporation remains encouraged by recent third party merger and acquisition activities in the Western Canadian Sedimentary Basin (“WCSB”) that is generally strengthening counterparty balance sheets. The recent announcement of the merger between Husky Energy and Cenovus Energy is expected to strengthen the Corporation’s credit profile.
  • This momentum at the Corporation’s facilities is expected to continue during the fourth quarter and into 2021. Guidance of forecasted Adjusted EBITDA remains at $175 million to $185 million for the full year 2020. The timing and extent of the economic recovery, especially as COVID-19 cases continue to rise globally, could impact these forecasts.

Environmental, Social and Governance

  • The Corporation continues to be committed to its Environmental, Social and Governance (“ESG”) performance by investing in infrastructure to increase energy and natural resource efficiency, reduce emissions, and enhance environmental performance. The Corporation has a vital role to play in the long-term renewable energy transition in Canada and is taking initiative in clean fuels through its existing hydrogen and carbon capture assets, its ability to blend ethanol and biodiesel and its current canola co-processing project. Tidewater continues to evaluate certain small and large-scale green capital projects, in conjunction with government funding programs, at many of its facilities, including expanding current hydrogen production, carbon capture and both canola co-processing and renewable diesel at PGR.
  • Earlier this year Tidewater introduced a website interface for all stakeholders to view ESG performance metrics. Tidewater remains committed to enhancing its disclosures and in November published a significant increase in ESG metrics and corporate policies which highlight several improving trends. This information is available at
  • In line with Tidewaters commitment to actively improve the quality of the communities in which we work and live, Tidewater is pleased to be recognized as the First and Founding partner of Project Forest. This initiative is a non-profit that is focused on rewilding local landscapes to capture carbon naturally by bringing likeminded, environmentally conscious organizations together to plant trees and create forests.

COVID-19 Update

  • Tidewater continues to monitor the developments related to COVID-19. Safeguarding the well-being of Tidewater’s personnel is its principal concern and it remains focused on operating safely and responsibly and providing the essential services that its communities and customers rely on during the COVID-19 pandemic. The Board of Directors, executive team and division leaders continue to meet regularly to align response strategies and efforts within all areas of the Corporation. The Corporation commends its employees for continuing to operate safely and responsibly and providing extra customer service in this challenging environment.
  • Operating conditions have greatly improved from the second quarter, but there are still uncertainties around the pandemic and the economic recovery. The Corporation continues to operate safely and reliably, following COVID-19 protocols in both the field and in offices, social distancing, and working remotely as conditions warrant. The Corporation’s facilities continue to remain fully operational and capable of meeting customer needs.
  • Tidewater continues to prioritize the health and safety of its personnel during COVID-19. The Corporation’s offices and facilities operate with stringent hygiene protocols to protect its employees and to ensure delivery of critical services. The Corporation has begun returning its workforce to its business offices and continues to assess its pace of re-entry depending on guidance from health and government officials.

Outlook & Corporate Update

Tidewater is well positioned to weather the current economic environment and remains focused on cash flow generation, increasing liquidity and reducing leverage. Tidewater’s forecasted payout ratio is expected to range from 25% to 30% with the remainder of Distributable Cash Flow used to reduce leverage. The proceeds from the Pioneer Transaction will significantly reduce leverage with net proceeds of approximately $138 million. 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 expects net debt to annualized Adjusted EBITDA of approximately 3.0x – 3.5x subsequent to the completion 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, in addition to other products, 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 third quarter of 2020, PGR achieved over 95% utilization. Utilization increased during the third quarter as compared to the second quarter by approximately 12.6% due to the planned maintenance program at the refinery during the second quarter of 2020 and increased demand for refined products.

Tidewater’s refined product yields at PGR were as follows:


Q3 2020

Q2 2020

Q1 2020

Crude Throughput

11,825 bbl/day

10,500 bbl/day

11,124 bbl/day

Refinery Yield (1)


Gasoline yield




Diesel yield




Other (2)




(1)  Refinery yield includes crude and intermediates.

(2) Other refers to heavy fuel oil (HFO), LPG and feedstock consumed to fuel the refinery. 

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 third quarter, Tidewater realized improved margins as a result of increased refined product pricing and had an increase in refined product demand, as compared to the second quarter of 2020, due to the reduced social quarantine restrictions by the provincial and federal government. The Corporation was able to optimize its gasoline production at the refinery to meet increased demand and improved pricing. Butane blending has also enabled Tidewater to blend low value butane into the PGR gasoline pool.

The first offtake contract year with Husky Energy (“Husky”) ended on November 1, 2020 with Husky meeting its offtake obligations to Tidewater. The Corporation has received confirmation from Husky that the force majeure notice under the offtake agreement, that was initiated by Husky in April, 2020, has been withdrawn.

During the first week of October 2020, the refinery saw a 10% reduction of throughput due to planned maintenance which will have a minimal affect to fourth quarter results as it will enable the refinery to increase throughput for the remainder of the fourth quarter and into 2021.

Tidewater is encouraged by the resilience of the PGR asset in an unprecedented time with crack spreads holding steady around $50/bbl. This demonstrates the refinery’s long-term value in servicing the markets in which it operates. Demand for diesel continues to exceed diesel production as a result of large infrastructure projects including Coastal GasLink, Site C Dam, LNG Canada and the TransMountain pipeline expansion.

The Corporation continues to evaluate opportunities to develop future low-carbon fuel and renewable energy projects at PGR and expansion. These include expanding existing hydrogen assets and continuing to expand canola co-processing and the potential for a large scale renewable diesel project with potential support from the provincial government. Additionally, Tidewater is also pursuing 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 Alliance and TC Energy pipelines. The facility is also pipeline connected to Pembina for C2+ and C5+ liquid streams.

Tidewater processed an average volume of 72 MMcf/day in the third quarter of 2020. Facility availability for the quarter averaged 78% due to a constraint in early July. This was offset by record throughput in September of 86 MMcf/day and over 90% availability. The Pipestone Gas Plant is fully contracted with over 80% committed 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 and subject to closing of the Pioneer Transaction and is subject to customary conditions in a transaction of this nature including regulatory approvals by the Alberta Utilities Commission and the Alberta Energy Regulator. Following the execution of the purchase and sale agreement, the parties filed applications for regulatory approval. Regulatory approval is anticipated in the first quarter of 2021 and Tidewater remains proactive in its efforts to accelerate this timeline. Closing of the transaction will occur within ten days of receipt of regulatory approval.

Upon the closing of the Pioneer Transaction, the Pioneer Pipeline will be integrated into NGTL’s and ATCO’s Alberta integrated natural gas transmission systems to provide reliable natural gas supply to TransAlta’s power generating units at Sundance and Keephills.

Tidewater and NGTL have agreed to terms and conditions to qualify Tidewater to receive interruptible storage services (“IT-S Service”) at Tidewater’s Brazeau River Complex storage facilities (“BRC Storage Facilities”). With the IT-S Service, Tidewater will be able to attract new, creditworthy storage customers at the BRC Storage Facilities, creating expansion opportunities to increase storage capacities at the BRC Storage Facilities. Subject to regulatory approvals, Tidewater and NGTL have also agreed to terms and conditions to qualify Tidewater for NGTL services with respect to the natural gas currently transported on the Pioneer Pipeline and incremental natural gas from increased access to the NGTL system, which will lead to higher fractionation and processing utilization levels at the BRC.

Brazeau River Complex and Fractionation Facility

The BRC remains 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 two natural gas egress solutions given the BRC’s connection to the NGTL system and the Pioneer Pipeline.

Throughput at the BRC gas processing facility for the third quarter of 2020 was in-line with the previous quarter. Overall supply volumes at the fractionation facility increased approximately 1,000 bbl/day in the third quarter of 2020 relative to the prior quarter largely driven by increased truck-in supply and stronger NGL pricing.

Due to the recent improvement in AECO gas prices, the Corporation continues to see increased activity in the Deep Basin area near the BRC, which has led to the tie-in of additional raw gas volumes to the BRC from a mid-sized producer which came online in the fourth quarter of 2020. Tidewater continues to work 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.

The third quarter of 2020 demonstrated fair levels of market volatility which allowed the assets to perform well. July was characterized by stable and low pricing, mostly in the $1.70/Mcf to $2.10/Mcf range, allowing for consistent maximum injections. August was characterized by increasing price levels, combined with more pronounced backwardation in the forward curve allowing for structuring of paid injection deferrals to future periods. September generally saw spot prices decline over the month, starting in the $2.67/Mcf range and returning to sub $2.10/Mcf levels as the Corporation maintained maximum injections.

Operationally, all facilities performed well, with Pipestone Gas Storage facilities once again demonstrating daily injection rates in excess of forecasts in its first injection season following the 2019 expansion.

The Pipestone Gas Storage Facility is fully contracted with take-or-pay contracts spanning up to eight-years with multiple investment grade counterparties. The facility represents a significant step forward in 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.

Similarly, both Brazeau Nisku A and Brazeau Nisku F storage pools have continued to build inventories through the latter half of the injection season while continuing to meet the Pioneer Pipeline delivery obligations and realizing liquids value benefit through cycling.

Capital Program

During 2019, Tidewater commissioned three of the largest capital projects in the Corporation’s history related to the Pioneer Pipeline, Pipestone Gas Plant and Pipestone Gas Storage Facility. The Corporation’s focus in 2020 is on small-scale optimization and commissioning projects.

Tidewater’s focus over the next 12 months is to employ the related cashflow generated from its 2019 large completed capital projects and PGR, as well as proceeds from the Pioneer Transaction, towards deleveraging with a target net debt to Adjusted EBITDA ratio of approximately 3.0x – 3.5x following the closing of the Pioneer Transaction. To date, Tidewater has not committed to a significant capital program in 2021, however continues to evaluate smaller capital projects with the potential to generate returns in excess of 50%.

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