TWM Tidewater Midstream and Infrastructure Ltd

CALGARY, AB, Aug. 11, 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 six month periods ended June 30, 2022.

• Strong downstream performance and realized refining margins in excess of $100/bbl contributed to consolidated net income of $18.8 million and Adjusted EBITDA increasing to $69.9 million in the second quarter of 2022. Consolidated Adjusted EBITDA grew by approximately 34% compared to the same period in the prior year.
• Net cash provided by operating activities totaled $57.0 million for the second quarter of 2022, with distributable cash flow attributable to shareholders of $31.0 million equating to a payout ratio of 11%.⁽¹⁾
• During the second quarter of 2022, Tidewater Midstream's Pipestone Natural Gas Plant processed volumes of 101 MMcf/day, a 10% increase from the second quarter of 2021 and a 4% increase from the first quarter of 2022.
• Successful planned turnarounds at Tidewater Midstream's Ram River and Brazeau River Complex plants were executed during the second quarter of 2022. The turnarounds were completed safely on time and on budget.
• On July 27^th, 2022 Tidewater Midstream announced its financing plan to fully fund the repayment of $125 million senior unsecured notes (the "Senior Unsecured Notes") and $20 million second lien term loan (the "Second Lien Term Loan"). The Senior Unsecured Notes and Second Lien Term Loan repayments will be funded through proceeds from the announced unit offering and draws on an expanded senior credit facility (collectively the "Financing Plan").
• The Corporation is planning to expand its Pipestone Gas Plant ("Pipestone Phase 2"), adding 100 MMcf/day of sour natural gas processing to the facility, and is evaluating financing alternatives. The expansion will enlarge the Corporation's footprint in the liquids-rich Montney region with its existing capacity and natural gas storage assets.
• Tidewater Renewables Ltd. ("Tidewater Renewables"), in which Tidewater Midstream owns 69% of the outstanding common shares, continues its strong financial performance generating Adjusted EBITDA of $16.9 million and net income of $4.4 million during the second quarter of 2022.

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 and Other Financial Measures" section of this MD&A for further details.

During the second quarter of 2022, total throughput at the Corporation's Prince George refinery was approximately 11,810 bbl/day, consistent with the first quarter of 2022.

Prince George refining margins increased significantly during the second quarter of 2022, averaging over $100/bbl, a 37% increase from the 2021 average of $60/bbl and a 37% increase from the first quarter of 2022 average of $73/bbl. The increase in Prince George refining margins is partially offset by increased regulatory compliance costs related to British Columbia's Low Carbon Fuel Standard program. 

Strategically located within the Alberta Montney fairway, the Pipestone Natural Gas Plant processed its highest average volume of 101 MMcf/day in the second quarter of 2022, a 10% increase from the second quarter of 2021 and a 4% increase from the first quarter of 2022. Facility availability for the second quarter of 2022 averaged 96%, an increase of 2% from the first quarter of 2021, and a 4% increase from the first quarter of 2022. 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%. The local Montney formation continues to remain very active and the Pipestone Natural Gas plant remains fully contracted with over 85% of capacity committed on take-or-pay arrangements.

The Brazeau River fractionation facility was able to maintain steady operations during the second quarter of 2022 by maintaining stable plant production and truck in volumes. The fractionation facility utilization averaged 67%, a 10% increase from the second quarter of 2021 and a 20% decrease from the first quarter of 2022. The transitory decrease was due to the scheduled facility turnaround that was completed during the second quarter of 2022. The fractionation facility continues to serve as a key asset for Tidewater Midstream's NGL marketing business.

The BRC gas processing facility averaged throughput of 123 MMcf/day for the second quarter of 2022 an increase of 24% relative to the second quarter of 2021.  The raw gas processing rates at the BRC increased by 18% compared to the first quarter of 2022. 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.

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.

During the second quarter of 2022, the Corporation safely and successfully completed two large planned turnarounds at its Ram River Gas Plant and at the BRC. The Corporation has upcoming turnarounds occurring in the third quarter of 2022 for the Pipestone Gas Plant and the second quarter of 2023 for PGR. Tidewater Midstream expects full year 2022 maintenance capital expenditures to be approximately $35 – $40 million.

Subsequent to the second quarter Tidewater Midstream announced its Financing Plan to fully fund the repayment of $125 million of its Senior Unsecured Notes and its $20 Second Lien Term Loan. The Senior Unsecured Notes payable and Second Lien Term Loan repayments will be funded through, the previously announced unit financing and draws on the Corporation's credit facility.  Under the unit financing the company expects to raise gross proceeds of $58.1 million through a public offering and an additional $34.5 million through a private placement of units.  Each unit will be issued at a price of $1.20 per unit and will consist of one common share and one-half of one common share purchase warrant. One full common share purchase warrant will entitle the holder to ‎acquire one common share of the Corporation at a price of $1.44 for a period of up to 24 months from the expected closing date, currently expected to be on or about August 16, 2022. Full details and regulatory disclosures are available on SEDAR.

Additionally, and concurrent with the above transactions close, Tidewater expects to increase its senior credit facility from $420 million to $550 million through an expanded syndicate of lenders including two of Canada's largest financial institutions. The amended facility will mature on August 18, 2024.

Tidewater Midstream's outlook for full year 2022 remains unchanged, with the Corporation expecting 2022 consolidated Adjusted EBITDA to range from $230 – 245 million with deconsolidated Adjusted EBITDA expected to range between $180-190 million.

Due to the announced unit offering associated with the short form prospectus filed on August 9, 2022, the Corporation will not be hosting an earnings conference call. For further detail and discussion of Tidewater Midstream's financial performance please refer to our condensed interim consolidated financial statements and MD&A for the period ended June 30, 2022. Tidewater management expects to resume its quarterly earnings calls following its third quarter 2022 results release.

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:

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 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;
• the Corporation's plan to expand with Pipestone Phase 2, adding 100 MMcf/day of sour natural gas processing to the facility, and is evaluating financing alternatives;
• Pipestone Phase 2 will enlarge the Corporation's footprint in the liquids-rich Montney region with its existing capacity and natural gas storage assets and that the expansion will enlarge the Corporation's footprint in the liquids-rich Montney region with its existing capacity and natural gas storage assets;
• expected full year 2022 maintenance capital expenditures to be approximately $35 – $40 million;
• the expectation to increase its senior credit facility from $420 million to $550 million through an expanded syndicate of lenders and that the amended Senior Credit Facility will mature on August 18, 2024‎; 
• guidance with respect to forecasted net debt to Adjusted EBITDA, in expecting 2022 consolidated Adjusted EBITDA to range from $230 – 245 million with deconsolidated Adjusted EBITDA expected to range between $180-190 million;‎
• Management will be available for investor relations engagement following the Financing Plan close, and the expectation that it will be on or about August 16, 2022; 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.