TWM Tidewater Midstream and Infrastructure Ltd

CALGARY, AB, May 12, 2022 /CNW/ - Tidewater Midstream and Infrastructure Ltd. ("Tidewater Midstream" or the "Corporation") (TSX: TWM) has filed its condensed interim consolidated financial statements and Management's Discussion and Analysis ("MD&A") for the three months ended March 31, 2022.

• Tidewater Midstream delivered its twelfth consecutive quarter of consolidated Adjusted EBITDA growth generating $57.4 million in the first quarter of 2022, representing an approximate increase of 12% compared to the first quarter of 2021. Net income attributable to shareholders was $41.2 million for the first quarter of 2022 as compared to net income attributable to shareholders of $8.4 million in the first quarter of 2021. ⁽¹⁾
• Tidewater Midstream continues its deleveraging progress, with $673.1 million of outstanding consolidated net debt as of March 31, 2022, representing a 21% or $184.1 million reduction compared to the first quarter of 2021. ⁽¹⁾
• Net cash provided by operating activities totaled $52.2 million for the first quarter of 2022, with distributable cash flow attributable to shareholders of $22.3 million and a payout ratio of 15%. ⁽¹⁾
• The Corporation's strong financial performance was the result of record refining margins at the Corporation's Prince George refinery ("PGR"), coupled with growing midstream processing volumes resulting from increased development activities within Alberta's upstream energy sector. Prince George refining margins remain some of the most profitable in North America, with Prince George crack spreads over $90/bbl heading into the second quarter of 2022.
• Tidewater Midstream continues to progress the refinancing of its senior unsecured notes payable and second lien term loan and expects to close the refinancing before June 30, 2022. An announcement of the plan is expected to be made in the near term. The Corporation remains focused on improving its financial position and enhancing go-forward liquidity as well as funding future, profitable growth opportunities.
• The Corporation is proceeding with an expansion of its Pipestone Natural Gas Plant ("Pipestone Phase 2"), adding 100 MMcf/day of sour natural gas processing to the facility, with the final investment decision expected to be announced in the near term. The expansion will enlarge the Corporation's footprint in the liquids-rich Montney region with its existing capacity and natural gas storage assets. The expansion will be supported by ten year take-or-pay commitments as well as extensions on existing take-or-pay commitments up to ten years at the current facility.
• Tidewater Renewables Ltd. ("Tidewater Renewables"), in which Tidewater Midstream owns 69% of the outstanding common shares, continues to outperform initial forecasts highlighting Tidewater Midstream's progressive role in the Canadian infrastructure and renewable energy sector. Additionally, Tidewater Renewables has made significant progress on the construction of its Hydrogen Derived Renewable Diesel ("HDRD") complex as well as announcing a strategic renewable natural gas and feedstock partnership with a large feedlot operator during the first quarter or 2022.

CONSOLIDATED FINANCIAL HIGHLIGHTS

This press release presents the financial information of Tidewater Midstream on a consolidated basis unless otherwise noted. In addition to reviewing fully consolidated results, management reviews Adjusted EBITDA and net debt on a deconsolidated basis to highlight Tidewater Midstream's financial results, financial position, leverage, and debt covenants, excluding the impact of the Corporation's ownership in Tidewater Renewables. Tidewater Midstream's distributable cash flow excludes Tidewater Renewables' distributable cash flow to non-controlling interest shareholders. These metrics are not defined under IFRS and may not be comparable to those used by other entities. See the "Non-GAAP and Other Financial Measures" section of this press release for further details.

Tidewater Midstream's solid first quarter operating performance, coupled with increasing upstream development activities within key capture areas and higher than budgeted refining margins have led to strong financial results for the Corporation. Tidewater Midstream's 2022 consolidated Adjusted EBITDA is expected to range from $230 - $245 million with deconsolidated Adjusted EBITDA expected to range between $180-$190 million.

The Corporation continues to benefit from the strength in both global and local Prince George refining margins, with the potential to increase its EBITDA outlook should elevated refining margins persist throughout the year.

Prince George Refinery ("PGR")

During the first quarter of 2022, total throughput at the Corporation's Prince George refinery was approximately 11,745 bbl/day, approximately 4% below the previous quarter due to extended scheduled maintenance on the company's main feedstock pipeline.

PGR Historical Performance:

Prince George crack spreads averaged more than $70/bbl during the first quarter of 2022, a 17% increase from the 2021 average of $60/bbl. The increase in the Prince George crack spread is partially offset by increased regulatory compliance costs related to British Columbia's Low Carbon Fuel Standard program. 

Planned maintenance is scheduled for the second quarter of 2022 for annual exchanger cleaning. This planned maintenance, in addition to scheduled maintenance on the company's main feedstock pipeline, is expected to result in refinery throughput being similar to first quarter average throughput.

Strategically located within the Alberta Montney fairway, the Pipestone Natural Gas Plant processed volume of 97 MMcf/day in the first quarter of 2022, a 16% increase from the first quarter of 2021 and consistent with the fourth quarter of 2021. Facility availability for the first quarter of 2022 averaged 93%, an increase of 9% from the first quarter of 2021, consistent with the fourth quarter of 2021 despite colder than normal first quarter temperatures. The Pipestone Natural Gas Plant's next scheduled turnaround is in the third quarter of 2022, which is expected to decrease third quarter throughput by approximately 20%. Given the level of upstream activity within the Montney region, the Pipestone Natural Gas plant remains fully contracted with over 85% of capacity committed on take-or-pay arrangements.

The Brazeau River fractionation facility maintained steady operations during the first quarter of 2022 by maintaining stable plant production and truck in volumes. The fractionation facility utilization averaged 87%, a 12% increase from the first quarter of 2021 and a slight decrease of 6% from the fourth quarter of 2021. The Brazeau River fractionation facility will undergo planned maintenance in the second quarter of 2022. The fractionation facility continues to serve as a key asset for Tidewater Midstream's NGL marketing business.

Throughput at the BRC gas processing facility for the first quarter of 2022 decreased by 13% compared to the first quarter of 2021 and decreased 20% compared to the fourth quarter of 2021 primarily due to third party equipment constraints. The Corporation expects these constraints to be resolved in the second quarter of 2022. Management expects similar second quarter throughput, with maintenance interruptions being offset by the resolution of third party equipment constraints.  Tidewater Midstream continues to look for opportunities to increase third-party throughput by working with producers to improve netbacks by increasing the utilization of the BRC's facilities.

The first quarter of 2022 was notable in terms of both the outright AECO natural gas price as well as continued pricing volatility, with cash prices ranging from $3.55 CAD/GJ to $5.57 CAD/GJ due to high gas prices in pipeline connected markets and periods of below seasonally cold winter weather conditions.

Operationally, all storage facilities performed as forecasted throughout the quarter and successfully met all delivery obligations, even during periods of extreme cold in the late winter.

The Pipestone Natural Gas Storage facility's deliverability rates held steady over the quarter as the facility is optimized for current reservoir pressures. Similarly, the deliverability at the Brazeau storage pools matched expectations throughout the quarter, helping meet gas-fired power demand via the Pioneer Pipeline and helping to increase storage and liquids extraction value. Despite the operational success, the current backwardation in the natural gas forward curve has created a shift in storage dynamics leading to atypical scheduled withdrawals during the summer months that lead to lower earnings for natural gas storage assets. 

The Pipestone Natural Gas Storage Facility is largely contracted with take-or-pay contracts through 2029 with multiple investment grade counterparties.

Tidewater Midstream's 2022 capital program focuses on small-scale optimization projects along with its renewable initiatives. Tidewater Midstream continues to evaluate and execute smaller capital projects in the $5 million to $25 million capital cost range with strong short-term returns on investment. The Corporation is committed to the Pipestone Phase 2 expansion with a final investment decision expected to be announced in the near term.

During the second and third quarters of 2022, the Corporation has planned major turnaround projects at the BRC, Ram River and Pipestone Natural Gas Plant. In the second quarter of 2023, the Corporation has a planned major turnaround at PGR. As a result, Tidewater Midstream expects 2022 maintenance capital expenditures to be in the $35-$40 million range which will be weighted to the second and third quarters. Given the impact to processing volumes during the turnarounds, the Corporation expects there to be a slight reduction in EBITDA and distributable cash flow during the planned maintenance events.

In conjunction with the earnings release, Tidewater Midstream's senior management will review its first quarter 2022 results via conference call on Thursday, May 12, 2022 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://produceredition.webcasts.com/starthere.jsp?ei=1538825&tp_key=09269a1af5 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.

Tidewater Midstream is traded on the TSX under the symbol "TWM". Tidewater Midstream'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 Midstream 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, NGLs and renewable products and services to customers across North America.

Tidewater Midstream is a majority shareholder in Tidewater Renewables Ltd. ("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".

Throughout this press release and in other materials disclosed by the Corporation, Tidewater Midstream uses a number of financial measures when assessing its results and measuring overall performance. The intent of non-GAAP measures and ratios is to provide additional useful information to investors and analysts. Certain of these 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 measures should not be considered in isolation or used as a substitute for measures of performance prepared in accordance with GAAP. For more information with respect to financial measures which have not been defined by GAAP, including reconciliations to the closest comparable GAAP measure, see the "Non-GAAP and Other Financial Measures" section of Tidewater Midstream's most recent MD&A which is available on SEDAR.

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 income (or loss) before finance costs, taxes, depreciation, share-based compensation, unrealized gains/losses on derivative contracts, non-cash items, transaction costs, lease payments under IFRS 16 Leases and other items considered non-recurring in nature plus the Corporation's proportionate share of EBITDA in their 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 Midstream'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 income (loss) and comprehensive income (loss). The adjustments made to net income (loss), as described above, are also made to share of profit from investments in equity accounted investees.

The following table reconciles net income (loss), the nearest GAAP measure, to consolidated Adjusted EBITDA and deconsolidated Adjusted EBITDA:

Distributable cash flow attributable to shareholders (excluding distributable cash flow to non-controlling interest shareholders associated with Tidewater Renewables)

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 expenses, and after any expenditures that use cash from operations. 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. Deducted from distributable cash flow are maintenance capital expenditures, including turnarounds, as they are ongoing recurring expenditures which are funded from operating cash flows. Transaction costs are added back as they vary significantly quarter to quarter based on the Corporation's acquisition and disposition activity. It also excludes non-recurring transactions that do not reflect Tidewater Midstream's ongoing operations. Distributable cash flow attributable to shareholders also deducts distributable cash flow to non-controlling interest shareholders associated with Tidewater Renewables.

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

Payout Ratio

Distributable cash flow per common share

Consolidated and Deconsolidated Net Debt

Consolidated net debt is defined as bank 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.

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 Midstream and Infrastructure Ltd. (the "Corporation" or "Tidewater Midstream") 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:

• the Corporation's renewable initiatives, including plans related to same, timing and financing;
• the Corporation's plans to refinance its senior unsecured notes payable and second lien term loan, and expectations on timing of a decision;
• timing of the final investment decision of Pipestone Phase 2;
• continued volatility of financial markets and commodity prices;
• guidance with respect to forecasted net debt to Adjusted EBITDA;‎
• continued consistent performance of the Corporation's facilities‎;
• budgets, including future capital, operating, compliance and other expenditures and projected costs;
• impacts of investments to enhance the Corporation's indigenous relations;
• the Corporation's continuing evaluation of opportunities to develop future low-carbon fuel and renewable energy projects at the PGR and expansion and optimization opportunities at the PGR;
• the Corporation's ability to secure feedstock supply for the renewable natural gas and renewable diesel projects, while also accelerating the diversification of its low carbon intensity fuels product offering;
• impact of planned annual maintenance on PGR;
• improvement of margins and related service offerings;
• demand for refined and renewable products;
• negotiation of long-term take-or-pay agreements with investment grade (or near investment grade) counterparties;
• focus on maximizing cash flow while increasing shareholder return over time;
• timing and resolution of third party equipment constraints at the BRC gas processing facility;
• the Corporation's efforts to increase third-party throughput;
• the Corporation's execution of smaller capital projects with strong short-term returns on investment;
• the Corporation's focus on generating cash flow, increasing liquidity and reducing leverage;
• forecasts with respect to future environmental and climate change compliance obligation costs, and success of same;
• Tidewater Midstream'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; ‎
• Tidewater Midstream's ESG-related goals, including emission reduction targets, and‎ the environmental impact of the Corporation's projects;
• maintenance of financial covenants under the Corporation's debt instruments; ‎
• expectations around the Corporation's maintenance of sufficient liquidity to fund ongoing operations, ‎debt service requirements, payment of dividends and working capital needs; ‎
• the Corporation's intention to continue to maintain a long-term leverage target of 3.0x to 3.5x consolidated net debt to annualized adjusted EBITDA;
• the Corporation's activities in exploring alternative funding options, including refinancing the second ‎lien term loan and senior unsecured notes payable with a goal to reduce borrowing costs and ‎extend maturity dates; ‎
• credit rating changes; ‎
• success of hedges and forward contracts to offset risks; and
• expectations that net cash provided by operating activities, cash flow generated from growth projects and cash available from Tidewater Midstream's Senior Credit Facility and other sources of financing will be sufficient to meet its obligations and financial commitments and will provide sufficient funding for anticipated capital expenditures.

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 Midstream'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 expectation and development activity levels 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;
• assumptions regarding amount of operating costs to be incurred;
• that there are no unforeseen material costs relating to the facilities which are 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 Midstream 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 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 Midstream;
• failure to close transactions as contemplated and in accordance with negotiated terms;
• 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;
• the regulatory environment and decisions, and First Nations 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 Midstream'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 government 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;
• 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;
• 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 Midstream 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.