TWM Tidewater Midstream and Infrastructure Ltd

(TSX:TWM)

CALGARY, AB, Nov. 10, 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 and nine month periods ended September 30, 2022.

THIRD-QUARTER 2022 HIGHLIGHTS

• Local refining margins in excess of $95/bbl and consistent operating performance at Tidewater's Prince George Refinery ("PGR") contributed to consolidated Adjusted EBITDA for the third quarter of 2022 of $62.1 million, 17% higher than the third quarter of 2021. Consolidated net loss and comprehensive net loss was $22.0 million for the third quarter of 2022.
• $9.2 million of third quarter distributable cash flow contributed to $62.5 million of distributable cash flow for the nine months ended September 30, 2022, representing a 25% increase over the previous nine month period of 2021.
• During the third quarter, the Corporation closed its previously announced financing plan to fully fund the repayment of $125 million senior unsecured notes and $20 million of its second lien term loan. The notes and second lien repayments were funded through an equity financing with net proceeds of approximately $87 million and draws on the Corporation's expanded credit facility.
• To support the company's third quarter financing, Tidewater's lenders agreed to increase the Corporation's credit facility by 30% to $550 million with the facility maturing in the third quarter of 2024. Tidewater's leverage levels, as measured by its trailing 12 month net debt to Adjusted EBITDA leverage metric, is now below 3x.
• Full year 2022 Consolidated Adjusted EBITDA guidance has been increased from a range of $230 - $245 million to $235-$255 million due to the outperformance of the Tidewater Renewables business and Tidewater Midstream's Adjusted EBITDA trending to the high end of its original $180-190 million deconsolidated guidance. Additionally due to inflationary pressures, the Corporation's deconsolidated maintenance capital budget has been increased from a range of $35-$40 million to $40-$45 million, with Tidewater Renewables' Renewable Diesel & Renewable Hydrogen ("HDRD") project expecting costs to be 10% higher than originally forecast.
• Tidewater Renewables Ltd. ("Tidewater Renewables"), in which Tidewater Midstream holds a 69% ownership stake, continues to evolve its leadership role in the Western Canadian energy transition landscape and recently entered into a 20 year renewable natural gas (RNG) offtake agreement with British Columbia based utility Fortis BC Energy Inc and closed a strategic investment from Alberta Investment Management Corporation (AIMCo) to help fund the Corporation's renewable energy initiatives.

CONSOLIDATED FINANCIAL HIGHLIGHTS

DECONSOLIDATED FINANCIAL HIGHLIGHTS

This MD&A 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 Measures" section of this MD&A for further details.

OPERATIONS - DOWNSTREAM

Prince George Refinery ("PGR")

During the third quarter of 2022, total throughput at the Corporation's Prince George refinery was approximately 11,860 bbl/day, consistent with the previous quarter.

PGR Historical Performance:

Prince George refining margins averaged over $95/bbl during the third quarter of 2022, a 5% decrease from the previous quarter's multi-year highs as global refined product prices moderated during the third quarter. Tidewater's lower margins were partially offset by increased gasoline and diesel sales compared to both the previous quarter of 2022 and the third quarter of 2021, due to increased demand in the Prince George region.

OPERATIONS - MIDSTREAM

Pipestone Natural Gas Plant

Prior to a planned turnaround during the third quarter of 2022, the Pipestone Natural Gas Plant processed an average volume of 104 MMcf/day during the quarter, a 6% increase from the third quarter of 2021 and a 3% increase from the second quarter of 2022. Third quarter facility availability, prior to the turnaround, averaged 98%, an increase of 5% from the third quarter of 2021, and a 2% increase from the third quarter of 2022. The Pipestone Gas Plant's turnaround was completed safely and successfully early in the fourth quarter of 2022. 

Brazeau River Complex and Fractionation Facility ("BRC")

The Brazeau River gas processing facility averaged throughput of 156 MMcf/day for the third quarter of 2022, a 10% increase compared to the second quarter of 2022 and an increase of 17% relative to the third quarter of 2021.  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 Brazeau River fractionation facility was able to maintain steady operations during the third quarter of 2022 by maintaining stable plant production and truck in volumes. The fractionation facility utilization averaged 74%, an 8% increase from the third quarter of 2021 and a 7% increase from the second quarter of 2022. The fractionation facility continues to serve as a key asset for Tidewater Midstream's NGL marketing business.

CAPITAL PROGRAM

Tidewater Midstream's 2022 capital program focuses on small-scale optimization projects along with its renewable initiatives. Tidewater Midstream continues to  valuate and execute smaller capital projects in the $5 million to $25 million capital cost range with strong short-term returns on investment.

Throughout 2022, the Corporation safely and successfully completed three large, planned turnarounds at its Ram River Gas Plant, Pipestone Gas Plant and at the Brazeau River Complex. The Corporation has an upcoming turnaround occurring in the second quarter of 2023 at its Prince George Refinery.

Due to inflationary pressures and a moderate increase in scope of turnaround work, Tidewater Midstream expects full year 2022 deconsolidated maintenance capital expenditures to be approximately $40 – 45 million, compared to its previously guided $35-40 million.

During the third quarter of 2022, Tidewater Renewables made considerable progress on the construction of its 3,000 bbl/day HDRD complex, including the completion of construction on multiple refinery modules. Tidewater Renewables is experiencing capital cost inflationary pressures, as it resolves supply chain disruptions while adhering to the construction timeline and currently expects gross capital costs on its HDRD project to be 10% above the previously announced guidance of $235 million.

OUTLOOK

Tidewater Midstream's 2022 consolidated Adjusted EBITDA is expected to exceed previous guidance as a result of Tidewater Renewables' base business, with consolidated Adjusted EBITDA expected to be between $235 -$255 million and deconsolidated Adjusted EBITDA expected to be at the high end of the previously disclosed $180 - $190 million range.

The Corporation continues to progress the evaluation of financing alternatives to support its Pipestone Gas Plant ("Pipestone Phase 2") that would add 100 MMcf/day of sour natural gas processing to the facility.  The expansion will enlarge the Corporation's footprint in the liquids-rich Montney region with its existing capacity and gas storage assets.

THIRD QUARTER 2022 EARNINGS CALL

In conjunction with the earnings release, Tidewater Midstream's senior management will review its third quarter 2022 results via conference call on Thursday, November 10, 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://app.webinar.net/vrJLZDqWwXd 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 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, 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 AND OTHER FINANCIAL MEASURES

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 Measures" section of Tidewater Midstream's most recent MD&A which is available on SEDAR.

Non-GAAP Financial 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 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 Adjusted 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 attributable to shareholders 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:

Non-GAAP Financial Ratios

Payout Ratio

Distributable cash flow per common share

Capital Management Measures

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:

• Corporation continues to progress the evaluation of financing alternatives to support its Pipestone Phase 2 that would add 100 MMcf/day of sour natural gas processing to the facility;
• Pipestone Phase 2 will enlarge the Corporation's footprint in the liquids-rich Montney region with its existing capacity and natural gas storage assets;
• the strategic investment from AIMCo in Tidewater Renewables will fund the company's renewable energy initiatives;
• the Brazeau River fractionation facility continues to serve as a key asset for Tidewater Midstream's NGL marketing business;
• 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;
• 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;
• Tidewater Midstream expects full year 2022 deconsolidated maintenance capital expenditures to be approximately $40 – 45 million;
• Tidewater Renewables' Renewable Diesel & Renewable Hydrogen ("HDRD") project expecting costs to be 10% higher than originally forecast; and
• 2022 consolidated Adjusted EBITDA is expected to exceed previous guidance as a result of Tidewater Renewables' base business, with consolidated Adjusted EBITDA expected to be between $235 - $255 million and deconsolidated Adjusted EBITDA expected to be at the high end of the previously disclosed $180 - $190 million range.

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.