TWM Tidewater Midstream and Infrastructure Ltd

(TSX:TWM)

CALGARY, AB, May 11, 2023 /CNW/ - Tidewater Midstream and Infrastructure Ltd. ("Tidewater" or the "Corporation") (TSX: TWM) has filed its interim consolidated financial statements and Management's Discussion and Analysis ("MD&A") for the period ended March 31, 2023.

FIRST-QUARTER 2023 HIGHLIGHTS

• Total midstream throughput volumes of 390 MMcf/day represent a 6% increase over the previous quarter. The Corporation's Pipestone natural gas plant ("Pipestone") processed record volumes for the quarter benefitting from planned turnaround work that took place in the fourth quarter of 2022.
• Midstream operations contributed approximately 50% of Tidewater's first quarter 2023 consolidated adjusted EBITDA⁽¹⁾ of $48.9 million and a net loss attributable to shareholders of $24.8 million for the quarter.
• With the support of its syndicate of lenders, Tidewater extended the term of its senior secured credit facility from August 2024 to February 2026.
• Tidewater has completed approximately 90% of its first scheduled four-year turn around at the Prince George Refinery ("PGR"), which represents the majority of the Corporation's 2023 budgeted maintenance capital.
• In April of 2023, Tidewater Renewables Ltd. ("Tidewater Renewables") received incremental government support of $43 million and the Corporation subsequently received support to increase its borrowing capacity by a total of $50 million to complete and commission the Renewable Diesel and Renewable Hydrogen Complex ("HDRD Complex").
• Construction of Tidewater Renewables' HDRD Complex is scheduled for completion in June 2023, at which point commercial operations will commence and increase into the third quarter of 2023. Tidewater Renewables is forecasting an average utilization rate of 75% to 80% of its design capacity during the second half of 2023.

"Our midstream assets continue to perform at or above forecast levels and while crack spreads have weakened from the very high levels seen last year, we expect improved Prince George Refinery results coming out of our turn around and heading into the summer driving season. I want to thank our dedicated field staff and contractors who have performed exceptionally well through a very challenging environment at Prince George with HDRD construction and refinery turn around projects occurring concurrently," stated Interim CEO Rob Colcleugh.

Update on Alberta Wildfires

On May 4, 2023, Tidewater activated its emergency response program due to the wildfires in Brazeau County. Facilities within the affected area were shut down safely and the Brazeau River Complex ("BRC") remains under the mandatory evacuation order for the area. Tidewater's first priority is the safety of its employees and their families, contractors, the surrounding communities, and emergency responders.

The Corporation received temporary access to the BRC on May 8, 2023 and no visible damage was observed. Tidewater continues to monitor the situation and is prepared to resume operations at the BRC once the site can be safely occupied and power is restored to the facility.

CONSOLIDATED AND DECONSOLIDATED FINANCIAL HIGHLIGHTS

DOWNSTREAM

Total first quarter throughput at the Corporation's Prince George Refinery ("PGR") was consistent with previous quarters at approximately 11,700 bbl/day. Financial results at PGR were impacted by reduced diesel margins, slightly offset by stronger gasoline pricing, with first quarter realized crack spreads of approximately $90/bbl, representing a 10% decrease from the previous quarter. Increased carbon compliance costs and third party pipeline maintenance costs further impacted financial results, with the downstream business contributing 50% of total gross margin for the quarter.

PGR Historical Performance:

Early in the second quarter, Tidewater commenced its scheduled four-year turnaround at PGR, which will impact operating results during the second quarter of 2023. The turnaround remains on budget and is expected to be completed on schedule, with refinery operations scheduled to begin ramping back up in the second half of May.

MIDSTREAM

During the first quarter of 2023, total throughput volumes at the Corporation's midstream facilities were approximately 390 MMcf/day, an increase of 6% over the previous quarter. The increase is primarily due to higher utilization and throughput volumes at the Pipestone natural gas plant during the first quarter of 2023. First quarter 2023 midstream gross margin increased by approximately 31% compared to the fourth quarter of 2022, contributing to approximately 50% of the total gross margin for first quarter of 2023.

Midstream Gas Plant Inlet Volumes:

Pipestone Natural Gas Plant

The Pipestone natural gas plant benefitted from consistent run time during the quarter. Pipestone's average daily throughput of 104 MMcf/day increased 17% from the previous quarter and 7% from the first quarter of 2022. First quarter 2023 facility availability was 97%, an increase of 12% over the previous quarter.

Brazeau River Complex and Fractionation Facility

The BRC natural gas processing facility averaged throughput of 158 MMcf/day during the first quarter of 2023, which is consistent with the previous quarter and a 30% increase from the first quarter of 2022. Tidewater Midstream continues to look for opportunities to increase third-party throughput by working with upstream partners to improve netbacks that would increase the utilization of the BRC's facilities.

The BRC fractionation facility was able to maintain steady operations during the first quarter of 2023 by maintaining stable plant production and truck in volumes. The fractionation facility utilization averaged 76% which was in line with the previous quarter. The fractionation facility continues to serve as a key asset for Tidewater's natural gas liquids marketing business.

Ram River Gas Plant

The Ram River natural gas processing facility averaged throughput of 112 MMcf/day during the first quarter of 2023, which is an 8% increase over the previous quarter and a 10% increase over the first quarter of 2022. Tidewater is actively working with local third parties to increase throughput volumes, enhance overall regional processing efficiencies and maximize contracted revenues with the plant's sulphur handling infrastructure.

CAPITAL PROGRAM

Tidewater's 2023 disciplined approach to growth is predominantly focused on Tidewater Renewable's HDRD facility, as the Corporation focuses on maximizing free cash flow. Tidewater's 2023 growth capital includes minor spending on catalyst and tank upgrades at PGR and increased natural gas liquids storage capacity.

The Corporation's 2023 maintenance capital activities are weighted to the first half of 2023, with the four-year scheduled turnaround at PGR nearing completion. The turnaround remains on schedule and on budget, as there was no significant additional maintenance required outside the scope of the turnaround. Operations at PGR are scheduled to resume in the middle of May 2023, prior to the seasonal increase in refined product demand due to the summer driving season.

OUTLOOK

Following the PGR turnaround and its return to run rate operations, along with the commissioning of Tidewater Renewables' HDRD facility, the Corporation expects to provide adjusted EBITDA guidance for the second half of 2023 along with second quarter 2023 results. 

Tidewater's 2023 maintenance capital program is weighted to the first half of the year, focused primarily on the PGR turnaround with year to date capital invested consistent with Tidewater's previously announced annual deconsolidated maintenance capital guidance of $55 million to $65 million.  Tidewater expects to generate free cash flow in the second half of 2023, due to the significantly lower second half of 2023 maintenance capital budget combined with PGR's expected return to run rate operations.

Tidewater Renewables is expected to complete the construction of the HDRD complex in June 2023, at which point commercial operations will commence and increase into the third quarter of 2023. As the HDRD Complex ramps-up in the second half of 2023, the project is expected to operate between 75% to 80% of its design capacity while processes are optimized. The facility will be Canada's first standalone renewable diesel facility.

The Corporation continues to make progress on partnerships, joint venture and other financing alternatives to support its Pipestone expansion ("Pipestone Phase 2"). Pipestone Phase 2 would add 100 MMcf/day of sour natural gas processing to the facility, enlarging the Corporation's footprint in the liquids rich Montney region with its existing capacity and natural gas storage assets.

FIRST QUARTER 2023 EARNINGS CALL

In conjunction with the earnings release, Tidewater's executive will hold a call to review its first quarter 2023 results via conference call on Thursday, May 11, 2023 at 11:00 am MDT (1:00 pm EDT).

To access the conference call by telephone, dial 416-764-8659 (local / international participant dial in) or 1-888-664-6392 (North American toll free participant dial in). A question and answer session for analysts will follow management's presentation.

A live audio webcast of the conference call will be available by following this link: https://app.webinar.net/zBdX8Wm02xM and will also be archived there for 90 days.

For those accessing the call via Cision's investor website, we suggest logging in at least 15 minutes prior to the start of the live event. For those dialing in, participants should ask to be joined into the Tidewater Midstream and Infrastructure Ltd. earnings call.

ABOUT TIDEWATER MIDSTREAM

Tidewater is traded on the TSX under the symbol "TWM". Tidewater's business objective is to build a diversified midstream and infrastructure company in the North American natural gas, natural gas liquids, crude oil, refined product and renewable energy value chain. Its strategy is to profitably grow and create shareholder value Through the acquisition and development of conventional and renewable energy infrastructure.

To achieve its business objective, Tidewater is focused on providing customers with a full service, vertically integrated value chain through the acquisition and development of energy infrastructure, including downstream facilities, natural gas processing facilities, natural gas liquids infrastructure, pipelines, railcars, export terminals, storage, and various renewable initiatives. To complement its infrastructure asset base, the Corporation also markets crude, refined product, natural gas, natural gas liquids and renewable products and services to customers across North America.

Tidewater is a majority shareholder in Tidewater Renewables, a multi-faceted, energy transition company focusing on the production of low carbon fuels. Tidewater Renewables' common shares are publicly traded on the TSX under the symbol "LCFS".

NON-GAAP MEASURES

Throughout this press release, Tidewater uses a number of non-GAAP financial measures, non-GAAP financial ratios and capital management measures when assessing its results and measuring overall performance. The intent of these non-GAAP measures and ratios is to provide additional useful information to investors and analysts. These non-GAAP financial measures do not have a standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other entities. As such, these non-GAAP measures should not be considered in isolation or used as a substitute for measures of performance prepared in accordance with GAAP. Except as otherwise indicated, these financial measures will be calculated and disclosed on a consistent basis from period to period. Specific adjusting items may only be relevant in certain periods. For more information with respect to financial measures which have not been defined by GAAP, see the "Non-GAAP Measures" section of Tidewater's most recent MD&A which is available on SEDAR at www.sedar.com.

Non-GAAP Measures

The non-GAAP financial measures used by the Corporation are adjusted EBITDA and distributable cash flow

Consolidated and deconsolidated adjusted EBITDA

Consolidated adjusted EBITDA is calculated as (loss) income before finance costs, taxes, depreciation, share-based compensation, unrealized gains and losses on derivative contracts, transaction costs, gains and losses on the sale of assets, and other items considered non-recurring in nature plus the Corporation's proportionate share of EBITDA in its equity investments. Deconsolidated adjusted EBITDA is calculated as consolidated adjusted EBITDA less the portion of consolidated adjusted EBITDA attributable to Tidewater Renewables.

In accordance with IFRS, Tidewater's jointly controlled investments are accounted for using equity accounting. Under equity accounting, net earnings from investments in equity accounted investees are recognized in a single line item in the consolidated statement of net (loss) income and comprehensive (loss) income. The adjustments made to net income, as described above, are also made to share of profit from investments in equity accounted investees.

The following table reconciles net (loss) income, the nearest GAAP measure, to adjusted EBITDA:

Distributable cash flow attributable to shareholders

Distributable cash flow attributable to shareholders is a non-GAAP measure. Management believes distributable cash flow is a useful metric for investors when assessing the amount of cash flow generated from normal operations and to evaluate the adequacy of internally generated cash flow to fund dividends. Distributable cash flow is calculated as net cash provided by operating activities before changes in non-cash working capital, plus cash distributions from investments, transaction costs, non-recurring transactions, and less other expenditures that use cash from operations. Also deducted is the distributable cash flow of Tidewater Renewables that is attributed to non-controlling interest shareholders.

Changes in non-cash working capital are excluded from the determination of distributable cash flow because they are primarily the result of seasonal fluctuations or other temporary changes and are generally funded with short term debt or cash flows from operating activities. Transaction costs are added back as they can vary significantly based on the Corporation's acquisition and disposition activity. Non-recurring transactions that do not reflect Tidewater's ongoing operations are also excluded. Lease payments, interest and financing charges, and maintenance capital expenditures, including turnarounds, are deducted as they are ongoing recurring expenditures which are funded from operating cash flows.

Deconsolidated distributable cash flow is calculated by subtracting the portion of Tidewater Renewables' distributable cash flow that is attributed to shareholders of Tidewater from distributable cash flow attributable to shareholders.

The following table reconciles net cash provided by operating activities, the nearest GAAP measure, to distributable cash flow and deconsolidated distributable cash flow:

Non-GAAP Financial Ratios

Distributable cash flow per share

Distributable cash flow and deconsolidated distributable cash flow are non-GAAP financial measures. Management believes that these measures provide investors an indicator of funds generated from the business that could be allocated to each shareholder's equity position.

Distributable cash flow per share is calculated as distributable cash flow attributable to shareholders divided by the basic or diluted weighted average number of common shares outstanding for the period.

Deconsolidated distributable cash flow per share is calculated as deconsolidated distributable cash flow attributable to shareholders divided by the basic or diluted weighted average number of common shares outstanding for the period.

Capital Management Measures

Consolidated and deconsolidated net debt

Consolidated net debt is defined as bank debt, term debt, notes payable and convertible debentures, less cash. In addition to reviewing consolidated net debt, management reviews deconsolidated net debt to highlight the Corporation's financial flexibility, balance sheet strength and leverage. Deconsolidated net debt is calculated as consolidated net debt less the portion attributable to Tidewater Renewables.

Consolidated and deconsolidated net debt exclude working capital, lease liabilities and derivative contracts as the Corporation monitors its capital structure based on deconsolidated net debt to deconsolidated adjusted EBITDA, consistent with its credit facility covenants as described in the LIQUIDITY AND CAPITAL RESOURCES section of the MD&A.

The following table reconciles consolidated and deconsolidated net debt:

Advisory Regarding Forward-Looking Statements

Certain statements contained in this press release constitute forward-looking statements and forward-looking information (collectively referred to herein as, "forward-looking statements") within the meaning of applicable Canadian securities laws. Such forward-looking statements relate to future events, conditions or future financial performance of Tidewater based on future economic conditions and courses of action. All statements other than statements of historical fact may be forward-looking statements. Such forward-looking statements are often, but not always, identified by the use of any words such as "seek", "anticipate", "budget", "plan", "continue", "forecast", "estimate", "expect", "may", "will", "project", "predict", "potential", "targeting", "intend", "could", "might", "should", "believe", "will likely result", "are expected to", "will continue", "is anticipated", "believes", "estimated", "intends", "plans", "projection", "outlook" and similar expressions. These statements involve known and unknown risks, assumptions, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Corporation believes the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this press release should not be unduly relied upon.

In particular, this press release contains forward-looking statements pertaining to but not limited to the following:

• Tidewater's development, completion and commissioning of the Tidewater Renewables' HDRD Complex and the cost forecasts and expected benefits of the project including the forecast of an average utilization rate of 75% to 80% of its design capacity during the second half of 2023;
• Tidewater's midstream assets continue to perform at or above forecast levels and, while crack spreads have weakened from the very high levels seen last year, we expect improved Prince George Refinery results coming out of our turn around and heading into the summer driving season;
• the resumption of operations at the BRC once the site can be safely occupied and power is restored to the facility;
• the turnaround at PGR will impact operating results during the second quarter of 2023;
• the expected cyclical increase in refined product demand due to summer driving season;
• the Corporation's expectation to provide adjusted EBITDA guidance for the second half of 2023 along with second quarter 2023 results;
• Tidewater's 2023 maintenance capital program being heavily weighted to the first half of the year, focused primarily on the PGR turnaround;
• Tidewater's expectation to generate free cash flow in the second half of 2023, due to a significantly lower second half of 2023 maintenance capital budget combined with PGR's expected return to run rate operations;
• the completion timing and costs associated with the PGR turnaround;
• Tidewater Renewables' focus on the production of low carbon fuels, including renewable diesel, renewable hydrogen and renewable natural gas;
• supply and demand for products and services;
• estimated throughput;
• budgets, including future capital, operating or other expenditures and projected costs;
• the activity levels of upstream producers in areas that the Corporation operates;
• expectations regarding maintenance requirements and maintenance capital expenditures;
• the effect of commodity prices on Tidewater's refining margins;
• Tidewater's primary liquidity and capital resource needs are to fund ongoing capital expenditures, future growth opportunities, interest payments, working capital and a stable dividend;
• expectations that net cash provided by operating activities, cash flow generated from growth projects, cash available from its Senior Credit Facilities, and other sources of financing will be sufficient to meet the Corporation's obligations and financial commitments and will provide sufficient funding for anticipated capital expenditures;
• expectations that the current financial position of the Corporation provides sufficient financial flexibility and resources to manage liquidity requirements;
• expectations regarding the Corporations ability to maintain sufficient liquidity sources to fund its ongoing operations, debt service requirements, dividends and working capital needs;
• the Corporation's use of financial derivative contracts to manage commodity price, power, interest and foreign exchange risk;
• guidance with respect to forecasted net debt to adjusted EBITDA;‎
• continued consistent performance of the Corporation's facilities‎;
• demand for refined and renewable products;
• Tidewater's expectations to pay dividends from distributable cash flow;
• expectations relating to legislation and regulations, including environmental legislation and ‎regulations, and the impacts of such governmental actions on the Corporation's operations; ‎
• maintenance of financial covenants under the Corporation's debt instruments; ‎
• credit rating changes; ‎and
• the Corporation expectations regarding counterparty credit risk and the ability of the Corporation to limit its credit risk through dealing with recognized futures exchanges or investment-grade financial institutions and by maintaining credit policies which minimize overall counterparty credit risk.

Although the forward-looking statements contained in this press release are based upon assumptions which management of the Corporation believes to be reasonable, the Corporation cannot assure investors that actual results will be consistent with these forward-looking statements. With respect to forward-looking statements contained in this press release, the Corporation has assumptions regarding, but not limited to:

• Tidewater's ability to execute on its business plan;
• the timely receipt of all governmental and regulatory approvals sought by the Corporation;
• that PGR crack spreads remain strong and refined product demand continues to increase;
• general economic and industry trends, including the duration and effect of the COVID-19 pandemic;
• future commodity prices, including natural gas, crude oil, NGL and renewable energy prices;
• impacts of commodity prices and demand on the Corporation's working capital requirements; ‎
• continuing government support for existing policy initiatives;
• processing and marketing margins;
• impacts of seasonality and climate disruptions;
• future capital expenditures to be made by the Corporation;
• foreign currency, exchange and interest rates, and expectations relating to inflation;
• that there are no unforeseen events preventing the performance of contracts;
• the amount of future liabilities relating to lawsuits and environmental incidents and the availability of coverage under the Corporation's insurance policies;
• Cenovus volume demands from the PGR are consistent with forecasts;
• successful negotiation and execution of agreements with counterparties;
• oil and gas industry exploration and development activity and the geographic region of such activity;
• the Corporation's ability to obtain and retain qualified staff and equipment in a timely and cost-effective manner;
• the amount of operating costs to be incurred;
• that there are no unforeseen costs relating to the facilities, not recoverable from customers;
• distributable cash flow and net cash provided by operating activities are consistent with expectations;
• the ability to obtain additional financing on satisfactory terms;
• the availability of capital to fund future capital requirements relating to existing assets and projects;
• the ability of Tidewater to successfully market its products;
• credit rating changes;
• the successful integration of acquisitions and projects into the Corporation's existing business; and
• the Corporation's future debt levels and the ability of the Corporation to repay its debt when due.

The Corporation's actual results could differ materially from those anticipated in the forward-looking statements, as a result of numerous known and unknown risks and uncertainties and other factors including but not limited to:

• changes in demand for refined and renewable products;
• general economic, political, market and business conditions, including fluctuations in interest rates, foreign exchange rates, stock market volatility, supply/demand trends, armed hostilities, acts of war, terrorism, cyberattacks, diplomatic developments and inflationary pressures;
• activities of producers and customers and overall industry activity levels;
• failure to negotiate and conclude any required commercial agreements;
• non-performance of agreements in accordance with their terms;
• failure to execute formal agreements with counterparties in circumstances where letters of intent or similar agreements have been executed and announced by Tidewater;
• failure to close transactions as contemplated and in accordance with negotiated terms;
• the conflict in Ukraine and the corresponding impact on supply chains and the global economy;
• risks of health epidemics, pandemics, public health emergencies, quarantines, and similar outbreaks, including COVID-19, which may have sustained material adverse effects on the Corporation's business financial position results of operations and/or cash flows;
• changes in environmental and other laws and regulations or the interpretations of such laws or ‎‎‎regulations‎;
• ‎cost of compliance with applicable regulatory regimes, including, but not limited to, environmental laws and regulations, including greenhouse gas emissions;
• Indigenous and landowner consultation requirements;
• climate change initiatives or policies or increased environmental regulation;
• that receipt of third party, regulatory, environmental and governmental approvals and consents relating to Tidewater's capital projects can be obtained on the necessary terms and in a timely manner;
• that the resolution of any particular legal proceedings could have an adverse effect on the Corporation's operating results or financial performance;
• competition for, among other things, business capital, acquisition opportunities, requests for proposals, materials, equipment, labour, and skilled personnel;
• the ability to secure land and water, including obtaining and maintaining land access rights;
• operational matters, including potential hazards inherent in the Corporation's operations and the effectiveness of health, safety, environmental and integrity programs;
• actions by governmental authorities, including changes in regulation, tariffs and taxation;
• changes in operating and capital costs, including fluctuations in input costs;
• legal risks and environmental risks and hazards, including risks inherent in the transportation of NGLs and refining of light crude oils which may create liabilities to the Corporation in excess of the Corporation's insurance coverage, if any;
• actions by joint venture partners or other partners which hold interests in certain of the Corporation's assets;
• reliance on key relationships and agreements;
• losses of key customers;
• construction and engineering variables associated with capital projects, including the availability of contractors, engineering and construction services, accuracy of estimates and schedules, and the performance of contractors;
• the availability of capital on acceptable terms;
• changes in the credit-worthiness of counterparties;
• changes in the credit rating of the Corporation, and the impacts of this on the Corporation's access to ‎private and public credit markets in the future and increase the costs of borrowing; ‎
• adverse claims made in respect of the Corporation's properties or assets;
• risks and liabilities associated with the transportation of dangerous goods and derailments;
• effects of weather conditions (such severe weather or catastrophic events including, but not limited to, fires, floods, lightning, earthquakes, extreme cold weather, storms or explosions);
• reputational risks
• reliance on key personnel;
• technology and security risks, including cybersecurity;
• potential losses which would stem from any disruptions in production, including work stoppages or other labour difficulties, or disruptions in the transportation network on which the Corporation is reliant;
• technical and processing problems, including the availability of equipment and access to properties;
• changes in gas composition; and
• failure to realize the anticipated benefits of acquisitions.

The foregoing lists are not exhaustive. Additional information on these and other factors which could affect the Corporation's operations or financial results are included in the Corporation's most recent AIF and in other documents on file with the Canadian securities regulatory authorities.

Management of the Corporation has included the above summary of assumptions and risks related to forward-looking statements provided in this press release in order to provide holders of common shares in the capital of the Corporation with a more complete perspective on the Corporation's current and future operations and such information may not be appropriate for other purposes.

The Corporation's actual results' performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any off them do so, what benefits the Corporation will derive therefrom. Readers are therefore cautioned that the foregoing list of important factors is not exhaustive, and they should not unduly rely on the forward-looking statements included in this press release. Tidewater does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by applicable securities law. All forward-looking statements contained in this press release are expressly qualified by this cautionary statement.

Further information about factors affecting forward-looking statements and management's assumptions and analysis thereof is available in filings made by the Corporation with Canadian provincial securities commissions available on the System for Electronic Document Analysis and Retrieval ("SEDAR") at www.sedar.com.

SOURCE Tidewater Midstream and Infrastructure Ltd.