TWM Tidewater Midstream and Infrastructure Ltd

(TSX: TWM)

CALGARY, AB, March 9, 2023 /CNW/ - Tidewater Midstream and Infrastructure Ltd. ("Tidewater" or the "Corporation", "us", "we", or "our") (TSX: TWM) has filed its annual consolidated financial statements and Management's Discussion and Analysis ("MD&A") for the year ended December 31, 2022.

FOURTH-QUARTER AND YEAR-END 2022 HIGHLIGHTS

• Net income attributable to shareholders was $8.5 million for the year ended December 31, 2022. The fourth quarter of 2022 had a net loss attributable to shareholders of $30.0 million.
• Driven by strong margins and operating performance, Tidewater earned record consolidated adjusted EBITDA⁽¹⁾ in 2022 of $249.8 million, an increase of 19% over the previous year. Fourth quarter 2022 consolidated adjusted EBITDA was $60.4 million representing a 12% increase over the fourth quarter of 2021.
• Annual distributable cash flow attributable to shareholders⁽¹⁾ ("DCF") increased by 18% to $75.5 million compared to 2021, as strong refining crack spreads offset increased maintenance capital during 2022. Fourth quarter 2022 DCF was $13.1 million, representing a decrease of 6% compared to the fourth quarter of 2021, due to the planned maintenance capital program within its midstream assets.
• Tidewater safely and successfully completed planned turnarounds at its Pipestone, Brazeau River and Ram River natural gas processing plants in 2022. Deconsolidated maintenance capital of $41.5 million was within the previously guided budget of $40 to $45 million. With the 2022 maintenance activities now complete, Tidewater's core natural gas processing plants are not due for major turnarounds until 2024.
• At December 31, 2022, Tidewater reached its targeted deconsolidated debt levels with net debt⁽¹⁾ to adjusted EBITDA⁽¹⁾ of 2.9x, which is within the Corporation's target of 2.5x to 3.0x. During 2022, Tidewater successfully completed a significant refinancing, repaying its senior unsecured notes and second lien term loan maturing in 2022, which simplified the Corporation's capital structure, extended its debt maturity profile and reduced overall financing expenses.

"Tidewater closed out a record 2022 with solid fourth quarter results.  We are now focused on driving shareholder value by maximizing cash flow generation.  This process will involve a renewed focus on disciplined capital allocation as well as cost control.  Part of this effort also includes a structured review of our assets and may result in partnerships, sales or other options" comments Interim CEO, Rob Colcleugh.  "As we approach the major turnaround of our Prince George refinery in early Q2, we will also be reaching completion of our renewable diesel facility which, while experiencing further cost inflation, has recorded 598,467 manhours to date without any lost time work days.  This HDRD project will drive significant growth in the coming quarters for Tidewater Midstream and Tidewater Renewables."

CONSOLIDATED AND DECONSOLIDATED FINANCIAL HIGHLIGHTS

OPERATIONS - DOWNSTREAM

During the fourth quarter of 2022, total throughput at the Corporation's Prince George Refinery ("PGR") was approximately 11,715 bbl/day, consistent with the previous three quarters. With record refining margins and strong demand in 2022, downstream gross margin increased by more than 100% compared to 2021 and contributed approximately 60% of total gross margin for the full year and fourth quarter of 2022.

PGR Historical Performance:

Prince George crack spreads averaged more than $100/bbl during the fourth quarter of 2022, a 4% increase from the previous quarter, mainly driven by higher diesel pricing. The increased refining margins were partially offset by reduced seasonal demand for both gasoline and diesel during the fourth quarter of 2022.

During the second quarter of 2023, Tidewater has a planned turnaround at the Prince George refinery, that is currently scheduled for an approximate 6 week period starting in early Q2.  Consistent with historical practices, both the broader refinery team and the specialized turnaround team have completed various pre turnaround activities, including the procurement of long lead items, scheduling deliveries and securing subcontractors.

OPERATIONS – MIDSTREAM

Operations at each of Tidewater's core facilities benefitted from planned turnaround activity at its Pipestone, Brazeau River Complex and Fractionation Facility ("BRC") and Ram River Gas natural gas processing facilities. As a result of the 2022 investments in its core facilities, Tidewater is forecasting significantly less planned downtime for the next three years. During the fourth quarter of 2022, total throughput volumes at the Corporation's midstream facilities were approximately 369 MMcf/day, an increase of 9% over the previous quarter. Midstream gross margin increased by 9% for the full year of 2022 compared to 2021, contributing to approximately 40% of the total gross margin for 2022. The increase is primarily due to growth in third-party throughput volumes at its core facilities.

Midstream Gas Plant Inlet Volumes:

Pipestone Natural Gas Plant

During the fourth quarter of 2022, the Pipestone Natural Gas Plant completed its first turnaround and processed an average volume of 89 MMcf/day, a 10% decrease from the fourth quarter of 2021 and a 30% increase from the third quarter of 2022. Due to the planned turnaround, fourth quarter facility availability averaged 87% with plant availability and processing capacity returning to expected levels following the turnaround event.

Brazeau River Complex and Fractionation Facility

The BRC natural gas processing facility averaged throughput of 158 MMcf/day for the fourth quarter of 2022, a 9% increase compared to the third quarter of 2022 and an increase of 18% relative to the fourth 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 BRC fractionation facility was able to maintain steady operations during the fourth quarter of 2022 by maintaining stable plant production and truck in volumes. The fractionation facility utilization averaged 72% which was in line with the third quarter of 2022 and the fourth quarter of 2021. 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 gas processing facility averaged throughput of 104 MMcf/day for the fourth quarter of 2022, which is in line with both the previous quarter and the fourth quarter of 2021.  Tidewater has recently seen increases to third party volumes processed at the plant and 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

During 2022, Tidewater safely and successfully completed three large, planned turnarounds at its Ram River Gas Plant, Pipestone Natural Gas Plant and at the BRC. Tidewater's 2022 deconsolidated maintenance capital of $41.5 was at the lower end of 2022's latest guidance of $40 to $45 million.

Tidewater's 2022 growth projects were focused on the construction of its propylene splitter at Acheson, accretive growth projects to maximize producer netbacks, increasing blending capacity at its core facilities and other minor debottlenecking projects.

OUTLOOK

2022 deconsolidated adjusted EBITDA of $187.4 million was at the upper end of the $180 - $190 million guidance and consolidated adjusted EBITDA of $249.8 million was also at the upper end of the $235 - $255 million guidance.  Following the completion of the PGR turnaround and the successful HDRD commissioning expected in the second quarter of 2023, Tidewater expects to provide adjusted EBITDA guidance for the second half of 2023 with Q2 2023 results.

Following its three successful turnarounds in 2022, Tidewater's maintenance capital program for 2023 will focus primarily on the Prince George refinery turnaround, which will contribute to a total expected deconsolidated maintenance budget of $55 to $65 million. Tidewater's disciplined approach to growth in 2023 will be limited to Tidewater Renewables' HDRD facility and the successful completion and commissioning of this facility.

Tidewater Renewables, in which Tidewater Midstream holds a 69% ownership stake, has made significant progress on the construction of its HDRD Complex. The facility will be Canada's first standalone renewable diesel refinery and is now over 90% complete and is expected to complete construction in April 2023 and commence operations during the second quarter of 2023. Like many recent capital projects, the HDRD Complex has experienced significant inflationary cost pressures. The current estimated gross project cost, including commissioning, are approximately $342 million which compares to the previous estimate of $260 million.  Tidewater Renewables expects to fund the remaining project costs through the sale of BC LCFS credits and with the support of its current capital providers among other sources. During the first half of 2023, Tidewater Renewables expects to receive proceeds of approximately $53 million for the sale of BC LCFS credits under executed agreements. Despite the cost pressures, the project's economics remain attractive, and payback is expected within the first three years of operations.

The Corporation continues to evaluate financing alternatives to support its Pipestone Gas Plant expansion ("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.

FOURTH QUARTER 2022 EARNINGS CALL

In conjunction with the earnings release, Tidewater's senior management will hold a joint call with Tidewater Renewables to review its fourth quarter 2022 results via conference call on Thursday, March 9, 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/wPl5R0OLOB4 and will also be archived there for 90 days.

For those accessing the call via Cession'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 Though 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 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 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 before finance costs, taxes, depreciation, impairment, 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 income and comprehensive 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, 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 of Pipestone Phase 2;
• Tidewater's ability to benefit from the combination of growth opportunities and the ability to grow through capital projects;
• Tidewater's commercial plans at the PGR and connectivity to the Pipestone Gas Plant;
• The Corporation's ability to raise capital on acceptable terms;
• Expected project schedules, regulatory timelines, completion/in-service dates, planned turnarounds, capital expenditures and capacities associated with capital projects;
• The development of the HDRD complex including the construction costs, project timing and the benefits resulting from the completion of the HDRD complex;
• The economic benefits of the HDRD complex;
• The amount of planned downtime that will be required at each of Tidewater's core facilities;
• the BRC continues to serve as a key asset for Tidewater's NGL marketing business;
• the allocation of growth capital to the higher returning projects; the evaluation of the Corporation's asset base and its partnership options;
• Tidewater 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;
• Expectations regarding maintenance requirements and maintenance capital expenditures;
• Budgets, including future capital, operating or other expenditures and projected costs;
• The expected costs of project development including the HDRD project;
• Continued consistent performance of the Corporation's facilities;
• The timing of updated financial guidance;
• Tidewater's priorities and its ability to increase shareholder value through EBITDA growth, maximizing distributable cash flow per share and optimization of its asset portfolio;
• Tidewater's focus on driving shareholder value by maximizing cash flow generation and focus on disciplined capital allocation as well as cost control;
• the timing and results of a structured review of Tidewater's assets; and
• guidance with respect to forecasted net debt to adjusted EBITDA.

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 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 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;
• 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'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.

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.

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 shareholders 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.