/THIS RELEASE IS INTENDED FOR DISTRIBUTION OUTSIDE
THE UNITED STATES ONLY AND IS NOT
AUTHORIZED FOR DISTRIBUTION WITHIN THE
UNITED STATES/
All financial figures are approximate and in Canadian dollars
unless otherwise noted. This news release refers to adjusted
earnings before interest, taxes, depreciation and amortization
("Adjusted EBITDA"), net debt and distributable cash flow, which
are supplemental financial measures that do not have standardized
meanings under generally accepted accounting
principles ("GAAP"), and are therefore
unlikely to be comparable to similar measures presented by other
companies. For more information about these measures, please see
"Non-GAAP Measures" below.
CALGARY, Oct. 4, 2019 /CNW/ - Tidewater Midstream and
Infrastructure Ltd. ("Tidewater" or the "Company") (TSX: TWM) is
pleased to announce that it has entered into a purchase and sale
agreement ("PSA") to acquire Husky Energy Inc.'s ("Husky") light
oil refinery located at Prince George,
British Columbia ("B.C.") (the "Acquisition") thereby
expanding Tidewater's liquids value chain.
The Prince George Refinery ("PGR") is a 12.0 Mbbl/d light oil
refinery that predominantly produces low sulfur 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. The PGR's location
within the Prince George region
makes it a critical piece of infrastructure with a significant
logistical advantage to address the demand for these products.
The Acquisition purchase price is $215
million (subject to closing adjustments) plus acquired
inventory (estimated at approximately $62 million, primarily related to light oil
feedstock, line fill and refined product in storage). Transaction
costs and taxes are estimated at $11
million. The purchase price is also subject to contingency
payments as further described below.
Tidewater intends to finance the Acquisition through an increase
of its existing credit facility up to $600
million and a $100 million
second lien term loan.
PGR reported Adjusted EBITDA of approximately $100 million in 2018 and Tidewater management
estimates PGR 2020 Adjusted EBITDA of $75
million, which implies an attractive acquisition multiple of
2.9x Adjusted EBITDA prior to synergies(1). Tidewater
expects this transaction to be over 50% accretive to distributable
cash flow in the first full year of operations based on Tidewater
management's estimates. Overall the Acquisition provides improved
future distributable cash flow per share which is expected to
reduce the Company's debt levels.
Tidewater has entered into a 5-year offtake agreement with Husky
for 90% of the nameplate capacity on diesel and gasoline volumes
produced at PGR. The offtake agreement reflects certain
take-or-pay characteristics relating to committed volumes that
Husky has agreed to purchase and contains pricing review
mechanisms.
The obligations of Tidewater and Husky to complete the
Acquisition are subject to a number of closing conditions,
including approval under the Competition Act (Canada). The Acquisition is expected to
close in the fourth quarter of 2019 and is effective upon
closing.
PGR Asset is a Highly Strategic Vertical Expansion of
Tidewater's Supply Chain with Attractive Investment
Rationale
- Regional demand is robust and short supply of refined product,
having historically been driven by local energy intensive
industries including forestry, mining and oil and gas. Tidewater
expects demand to continue to be strong as various large-scale
infrastructure projects are developed in B.C.
- Current crude oil/condensate feedstock for the PGR can be
supplied by existing light oil and condensate production from B.C.
and Alberta, which Tidewater can
readily access with its existing and planned midstream footprint,
including the recently commissioned Pipestone Sour Gas Plant
("Pipestone"). Crude oil feedstock is currently delivered by
pipeline from Taylor, B.C. PGR has
optionality to receive feedstock supply by pipeline, rail and
truck.
- PGR product yields of approximately 45% diesel and
approximately 40% gasoline are primarily sold through Husky retail
gas stations and via exchange agreements with other Husky retail
partners, in addition, approximately 15% of additional yields are
LPG and heavy fuel oil.
Visible Synergistic Opportunities through Expanding
Tidewater's Liquids Value Chain
- Pipestone is projected to
produce 15.0 Mbbl/d of 45° API condensate and, correspondingly, 45°
API condensate is the optimal and current feedstock for the 12.0
Mbbl/d PGR. PGR's top two customers are two of Tidewater's
customers at Pipestone. There is a
significant overlap between producers supplying the PGR and the
counterparties that are committed as customers of Pipestone.
- PGR will provide value-add liquids services to existing clients
and help capture premium pricing optionality for the approximate
15.0 Mbbl/d of liquids processing at Pipestone, which are optimally suited to be
used as refinery feedstock.
- Tidewater plans to utilize its crude by rail infrastructure to
transport incremental inputs to PGR should economic/arbitrage
opportunities present themselves.
- Future optionality exists around transforming the PGR and the
related 1.0 MMbbl of storage into a long-term tolling and
infrastructure asset supported by long-term contracts and
customers. Options could include long-term storage contracts as
well as longer-term agreements with producers for fixed tolls where
producers realize the benefit of having exposure to diesel and
gasoline prices.
Key Terms of the Acquisition
- The Acquisition has a base purchase price of $215 million, an incremental inventory payment of
approximately $62 million and is
subject to a number of closing conditions.
- In the event PGR's Adjusted EBITDA exceeds $100 million in 2020 or 2021, Tidewater will pay
Husky 50% of the incremental Adjusted EBITDA above the $100 million threshold, up to a maximum of
$30 million per year.
- Tidewater plans to retain 100% of the core asset team at PGR,
which has demonstrated a successful operating track record,
top-decile safety standards, and an average management experience
of 18 years at the facility.
- Tidewater has entered into a 5-year offtake agreement with
Husky for 90% of the nameplate capacity on diesel and gasoline
volumes produced at PGR. The offtake agreement reflects certain
take-or-pay characteristics relating to committed volumes that
Husky has agreed to purchase and contains pricing review
mechanisms.
Financial Highlights
- Tidewater anticipates greater than 50% accretion to 2020
distributable cash flow per share, before synergies. Forecasted
2020 corporate distributable cash flow is estimated to be between
$105 - $115
million.
- In 2020 and beyond, the Acquisition provides Tidewater
additional flexibility to allocate distributable cash flow towards
further debt reduction, organic growth projects and/or other
accretive acquisitions.
C$
millions
|
Tidewater
Stand-Alone
|
Pro Forma
PGR
|
2019E Net
Debt(2)
|
$520 -
$530
|
$800 -
$810
|
2020E Adjusted
EBITDA(1)(2)
|
$130
|
$205
|
2020E
Distributable Cash Flow(2)
|
$60 -
$70
|
$105 -
$115
|
- Tidewater has conservatively modelled a three-year turnaround
schedule going forward.
- A non-refundable deposit equal to 10% of the purchase price was
paid by Tidewater to Husky upon signing of the PSA.
2020 Guidance
- With the commissioning of the Company's 2018/2019 organic
projects, and the Acquisition of PGR, Tidewater has increased 2020E
Adjusted EBITDA guidance to approximately $205 million.
- Tidewater expects to exit 2020 with Net Debt (including
outstanding convertible debentures, the existing notes, the second
lien term loan issued associated with the Acquisition and the drawn
credit facility) of $700.0 million to
$725.0 million.
- Tidewater remains committed to a long-term goal of targeting
Net Debt to Adjusted EBITDA of 2.5x-3.0x.
Credit Facility and Term Loan
In conjunction with the Acquisition and the operational update,
Tidewater has received approval, subject to satisfactory completion
of documentation, to expand its current credit facility from
$350 million to $420 million and will receive a subsequent
increase to $600 million at the time
of closing of the Acquisition.
Also in conjunction with the Acquisition, Tidewater has received
approval for $100 million second lien
term loan, through ATB Financial subordinated to the senior credit
facility, which matures on October 21,
2022 and bears interest at a bankers' acceptance rate + 450
bps ("ATB Term Loan"). Interest on the ATB Term Loan will increase
at a rate of 50 bps per quarter to a maximum of the bankers'
acceptance rate + 750 bps.
Impact of Bellatrix CCAA process on Tidewater
On October 2, 2019, Bellatrix
Exploration Ltd. announced its commencement of proceedings under
the Companies' Creditors Arrangement Act ("CCAA").
Tidewater estimates that its trade receivables from Bellatrix are
less than $100,000.
Pipestone Plant update
On September 23, 2019 Tidewater
announced commissioning of the Pipestone Montney, sour deep-cut gas
processing complex ("Pipestone Gas Plant"). Tidewater is
pleased to announce that the Pipestone Gas Plant is currently
processing approximately 40 MMcf/day of sour gas with ramp up to
full capacity of 100 MMcf/d expected by the end of 2019.
Advisors
National Bank Financial Inc. and CIBC World Markets are acting
as Financial Advisors to Tidewater with respect to the Acquisition
and AltaCorp Capital Corp. is acting as a Strategic Advisor to the
transaction.
Conference Call
In conjunction with this Acquisition announcement, investors
will have the opportunity to listen to Tidewater senior management
discuss this news release via conference call on October 7, 2019 at 11:00
am MT.
To access the conference call by telephone, dial
647-427-7450 (local / international participant dial in)
or 1-888-231-8191 (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://event.on24.com/wcc/r/2108463/DCAB87AE1AF3ACBFECDC6483D1C75452
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.
About Tidewater
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 ("NGL"), and crude oil space. Its strategy is
to profitably grow and create shareholder value through the
acquisition and development of oil and gas infrastructure.
Tidewater plans to achieve its business objective by providing
customers with a full service, vertically integrated value chain
through the acquisition and development of oil and gas
infrastructure including: refineries, processing plants, pipelines,
railcars, trucks, export terminals and storage facilities
Additional information relating to Tidewater is available on
SEDAR at www.sedar.com and at www.tidewatermidstream.com.
Notes:
- PGR 2018 Adjusted EBITDA of approximately $100 million is derived from historical financial
information provided by Husky. Proforma 2020 Adjusted EBITDA of
$75 million takes into account
historical performance, long-term operating views, volatility,
variability and cyclicality associated with refineries. Acquisition
multiple of 2.9x excludes potential contingent payments, closing
adjustments as well as inventory adjustments.
- See "Non-GAAP Measures" section for more information.
Non-GAAP Measures
This news release refers to Adjusted EBITDA, net debt and
distributable cash flow which are supplemental financial measures
("Non-GAAP Measures") that do not have standardized meanings under
International Financial Reporting Standards ("IFRS") representing
GAAP. Since Non-GAAP Measures do not have a standardized meaning
prescribed by GAAP and are therefore unlikely to be comparable to
similar measures presented by other companies, securities
regulators require that Non-GAAP Measures are clearly defined,
qualified and reconciled to their nearest GAAP measure. These
Non-GAAP Measures are calculated and disclosed on a consistent
basis from period to period. Specific adjusting items may only be
relevant in certain periods. The intent of Non-GAAP measures is to
provide additional useful information respecting Tidewater's
financial and operational performance to investors though the
measures do not have any standardized meaning under IFRS. The
measures, should not, therefore, be considered in isolation or used
in substitute for measures of performance prepared in accordance
with IFRS. Other issuers may calculate these Non-GAAP Measures
differently.
Investors should be cautioned that these measures should not be
construed as alternatives to revenue, earnings, cash flow from
operating activities, gross profit or other measures of financial
results determined in accordance with GAAP as an indicator of
Tidewater's performance. For additional information regarding
Non-GAAP Measures, please refer to Tidewater's financial reports,
which are available on SEDAR at www.sedar.com.
Adjusted EBITDA
2020E Adjusted EBITDA for Tidewater standalone is further
described in the Company's corporate presentation, which can be
found on the Company's website.
Net Debt
Net debt is defined as bank debt plus notes payable plus
convertible debentures, less cash. 2019E net debt is based on
estimated net debt at September 30,
2019 adjusted for estimated Q4 2019 capital expenditures,
estimated Q4 2019 cash flow and dividends. Additional debt incurred
on the closing date of the Acquisition is estimated to be
approximately $288 million.
Distributable Cash Flow
2020E distributable cash flow for Tidewater standalone is
calculated as Adjusted EBITDA (as described above) less interest
expense, lease payments and maintenance capital expenditures of
approximately $65 million. 2020E
distributable cash flow for Proforma PGR is calculated as Tidewater
standalone (as described above) plus PGR Adjusted EBITDA of
$75 million less additional interest
expense, lease payments and maintenance capital expenditures of
approximately $30 million.
Note Regarding Forward Looking Statements
This news release contains forward-looking statements within the
meaning of applicable Canadian securities laws. These statements
relate to future events or Tidewater's future performance. All
statements other than statements of historical fact may be
forward-looking statements. The use of any of the words
"anticipate", "continue", "estimate", "expect", "may", "will",
"project", "should", "believe", "plan", "intend" and similar
expressions are intended to identify forward-looking statements.
Forward-looking statements are often, but not always, identified by
such words. 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. Tidewater 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 news release should not be unduly relied upon.
These statements speak only as of the date of this news
release.
In particular, this news release contains forward-looking
statements with respect to: the anticipated Acquisition of the PGR;
positioning of the PGR as a logistical advantage to address demand
for refined products; estimated Adjusted EBITDA to be generated by
the PGR; expectations regarding accretion of the Acquisition;
expectations regarding Adjusted EBITDA and distributable cash flows
from the 5-year offtake agreement; expectations to finance the
Acquisition through an increased credit facility; projections
regarding demand for refined products; projections regarding future
supply of feedstock to the PGR; estimated production from
Pipestone; plans to use
crude-by-rail infrastructure to transport feedstock to the PGR;
future plans with respect to the PGR and potential for long-term
contracts with customers; payment of purchase price to close the
Acquisition and satisfaction of the terms thereof; plans to retain
current personnel at the PGR; expectations to purchase adequate
insurance for the PGR; estimated net debt; projected increases to
Tidewater's credit facility; integration of the Acquisition into
Tidewater's existing corporate strategy; projected processing
capacity of the Pipestone Gas Plant and projections regarding ramp
up to such capacity; and, estimates of receivables from a
counterparty that commenced CCAA proceedings.
The actual results could differ materially from those
anticipated in these forward-looking statements as a result of the
following risk factors: the future performance of the PGR; failure
to achieve the expected benefits of the Acquisition and to
efficiently integrate the PGR; the potential for liabilities
assumed in the Acquisition to exceed Tidewater's estimates or for
material undiscovered liabilities in the PGR; the potential for
third parties to terminate or alter their agreements or
relationships with Tidewater or the PGR as a result of the
Acquisition; the impact of the substantial additional indebtedness
Tidewater will incur to finance the Acquisition; Tidewater's
ability to close the Acquisition on the proposed terms and within
the anticipated time periods, or at all; general economic,
political, market and business conditions, including fluctuations
in interest rates, foreign exchange rates and stock market
volatility; effects of weather conditions; activities of producers,
competitors, customers and others; operational matters, including
potential hazards inherent in Tidewater's operations and the
effectiveness of health, safety, environmental and integrity
programs; fluctuations in commodity prices, inventory levels and
supply/demand trends; that receipt of third party, regulatory,
environmental and governmental approvals and consents relating to
the Acquisition and Tidewater's other capital projects can be
obtained on the necessary terms and in a timely manner; cost
overrun on capital projects; losses of key customers; actions by
governmental authorities, including changes in government
regulation, tariffs and taxation; changes in operating and capital
costs, including fluctuations in input costs; changes in
environmental and other laws and regulations or the interpretations
of such laws or regulations; the amount of future liabilities
relating to lawsuits and environmental incidents and the
availability of coverage under Tidewater's insurance policies, if
any; changes in laws or regulations or the interpretations of such
laws or regulations; the regulatory environment and decisions, and
First Nations and landowner consultation requirements; activities
of other facility owners, including access to third party
facilities; actions by joint venture partners or other partners
which hold interests in Tidewater's assets; the ability to secure
land and water, including obtaining and maintaining land access
rights; competition for, among other things, business, capital,
acquisition opportunities, requests for proposals, materials,
equipment, labour and skilled personnel; legal risks and
environmental risks and hazards, including risks inherent in the
transportation of NGLs which may create liabilities to Tidewater
in excess of Tidewater's insurance coverage, if any; fluctuations
in the supply and demand for NGLs and iso-octane; failure of
third parties' reviews, reports and projections to be accurate,
including those relating to the Acquisition; construction and
engineering variables associated with capital projects, including
the availability of contractors, materials, 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; credit risks; viability of counterparties and
take-or-pay arrangements; that counterparties will comply with
contracts in a timely manner; adverse claims made in respect of
Tidewater's properties or assets; risks and liabilities associated
with the transportation of dangerous goods; unexpected cost
increases, potential disruptions or unexpected technical
difficulties in developing new facilities or projects and
constructing or modifying processing facilities; 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 Tidewater is reliant; technical and processing problems,
including the availability of equipment and access to properties;
changes in gas composition; failure to realize the anticipated
benefits of recently completed acquisitions; and other factors,
many of which are beyond the control of Tidewater, some of which
are discussed under the section "Risk Factors" in
Tidewater's Annual Information Form for the year ended December 31, 2018, which is available on SEDAR at
www.sedar.com.
Although the forward-looking statements contained in this news
release are based upon assumptions which Tidewater believes to be
reasonable, Tidewater cannot assure investors that actual results
will be consistent with these forward-looking statements. With
respect to forward-looking statements contained in this news
release, Tidewater has made assumptions regarding, among other
things: completion of the Acquisition; the ability of Tidewater to
satisfy the conditions precedent in the Amended Credit Facility to
increase the amounts available thereunder to permit
the Acquisition; the satisfaction of all conditions to closing
the Acquisition; general economic and industry trends;
fluctuations or future natural gas, crude oil and NGL prices;
Tidewater's ability to obtain and retain qualified staff and
equipment in a timely and cost-effective manner; the impact of
increasing competition; operating costs and the amount of operating
costs to be incurred; construction schedules and costs, including
the availability and cost of materials and service providers;
processing and marketing margins; future capital expenditures to
be made by Tidewater; the ability to obtain additional debt and/or
equity financing on satisfactory terms; availability of capital to
fund future capital requirements relating to existing assets and
projects; the ability of Tidewater to successfully market its
products; Tidewater's future debt levels and the ability of
Tidewater to repay its debt when due; foreign currency,
fluctuations in currency and exchange and interest rates;
projected capital investment levels and the successful and timely
implementation of capital projects; anticipated timelines and
budgets being met in respect of Tidewater's projects and
operations; that any third-party projects relating to Tidewater's
growth projects will be sanctioned and completed as expected;
that any required commercial agreements can be negotiated and
completed; distributable cash flow and net cash provided by
operating activities consistent with expectations; oil and gas
industry expectation and development activity levels and the
geographic region of such activity; the ability of Tidewater to
obtain equipment, services, supplies and personnel in a timely
manner and at an acceptable cost to carry out its evaluations and
activities; and, the timely receipt of required regulatory
approvals.
Although Tidewater believes that the expectations reflected in
the forward-looking statements are reasonable, there can be no
assurance that such expectations will prove to be correct.
Tidewater cannot guarantee future results, levels of activity,
performance, or achievements. Moreover, Tidewater does not assume
responsibility for the accuracy and completeness of the
forward-looking statements. Tidewater's actual results, performance
or achievements 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 of
them do so, what benefits that Tidewater will derive therefrom.
Tidewater disclaims any intention or obligation to update or revise
any forward-looking statements, whether as a result of new
information, future events or otherwise, unless required by
applicable law. The forward-looking statements contained herein are
expressly qualified in their entirety by this cautionary
statement.
Financial outlook information contained in this news release
about prospective results of operations, financial position or cash
flows is based on assumptions about future events, including
economic conditions and proposed courses of action, based on
management's assessment of the relevant information currently
available. Readers are cautioned that such financial outlook
information contained in this news release should not be used for
purposes other than for which it is disclosed herein.
SOURCE Tidewater Midstream and Infrastructure Ltd.