THIRD-QUARTER 2019 FINANCIAL PERFORMANCE
Recent Highlights
- Tidewater generated strong Adjusted EBITDA in the third quarter of 2019 of $25.5 million or $0.08 per share, compared to $17.3 million or $0.05 per share in the third quarter of 2018.
- Net income attributable to shareholders increased to $11.0 million or $0.03 per share for the third quarter of 2019, compared to a net loss attributable to shareholders of $1.0 million or $0.00 per share for the third quarter of 2018.
- Net cash used in operating activities totaled $2.4 million for the third quarter of 2019, with distributable cash flow of $12.1 million and a payout ratio of 28% for the quarter and 25% for the nine months ended September 30, 2019.
- Tidewater successfully commissioned the 100 MMcf/day sour deep-cut gas processing complex (the “Pipestone Gas Plant”) on time and on budget, and began processing customer gas in September 2019. The Pipestone Gas Plant is currently processing over 60 MMcf/day of natural gas and throughput continues to increase. Full capacity has been impacted due to construction delays on downstream third-party infrastructure.
- Throughput on the Pioneer Pipeline continued to increase through the third quarter of 2019, with volumes reaching approximately 130 MMcf/day in the first week of November 2019 under the 15-year take-or-pay commitment with TransAlta. Tidewater and TransAlta continue to work together on additional volume commitments on the pipeline.
- With the commissioning of the Pipestone Gas Plant, the Pipestone Gas Storage Facility saw its first injections from the gas plant in the quarter, as well as its first flows to Chicago through the recently commissioned Saskatoon Mountain meter station via Alliance Pipeline. The Pipestone Gas Storage Facility continues to exceed expectations and is poised for an active withdrawal season into a recently strengthened winter AECO market.
- On August 8, 2019, Tidewater closed the previously announced $75 million bought-deal financing (the “Convertible Debenture Financing”) of five-year convertible unsecured subordinated debentures (the “Debentures”) with a syndicate of underwriters. The Debentures have a coupon of 5.5 percent per annum.
- On November 1, 2019, Tidewater closed the previously announced acquisition of the Prince George Refinery for cash consideration of $215 million and approximately $53 million related to the acquisition of crude inventory at the Prince George Refinery and approximately $9 million in taxes and closing costs. The Prince George Refinery continues to demonstrate attractive operating economics.
- In conjunction with the closing of the Prince George Refinery acquisition, Tidewater closed an increase to its existing Credit Facility from $350 million to $600 million as well as a $100 million second lien term loan maturing October 31, 2022.
- With the commissioning of the Pioneer Pipeline and Pipestone Gas Plant, expansion of the Pipestone Gas Storage facility, and the acquisition of the Prince George Refinery, Tidewater has transformed its customer and contract base through the addition of over ten new take-or-pay contracts ranging in term from five to fifteen years and including over five new investment-grade counterparties.
- With the substantial completion of the Corporation’s 2019 capital program and forecasted increase in cash flows, Tidewater is committed to reducing overall leverage through 2020 back to its historical levels with a target of 3.0x to 3.5x Net Debt to Adjusted EBITDA by the end of 2020.
Selected financial and operating information is outlined below and should be read with Tidewater’s consolidated financial statements and related MD&A as at and for the three and nine-month period ended September 30, 2019 which are available at www.sedar.com and on our website at www.tidewatermidstream.com.
Financial Overview
Consolidated Financial Highlights
Three months ended |
Nine months ended |
||||||||
(in thousands of Canadian dollars except per share |
2019 |
2018 |
2019 |
2018 |
|||||
Revenue |
$ |
147,045 |
$ |
80,102 |
$ |
426,021 |
$ |
233,550 |
|
Net income (loss) attributable to |
$ |
11,045 |
$ |
(988) |
$ |
(176) |
$ |
7,033 |
|
Basic and diluted net income (loss) |
$ |
0.03 |
$ |
(0.00) |
$ |
(0.00) |
$ |
0.02 |
|
Adjusted EBITDA (1) |
$ |
25,496 |
$ |
17,283 |
$ |
69,686 |
$ |
56,499 |
|
Adjusted EBITDA per common share – |
$ |
0.08 |
$ |
0.05 |
$ |
0.21 |
$ |
0.17 |
|
Net cash provided by (used in) operating |
$ |
(2,404) |
$ |
7,251 |
$ |
23,301 |
$ |
(1,017) |
|
Distributable cash flow (2) |
$ |
12,141 |
$ |
12,715 |
$ |
39,329 |
$ |
39,887 |
|
Distributable cash flow per common share |
$ |
0.04 |
$ |
0.04 |
$ |
0.12 |
$ |
0.12 |
|
Dividends declared |
$ |
3,349 |
$ |
3,293 |
$ |
9,969 |
$ |
9,876 |
|
Dividends declared per common share |
$ |
0.01 |
$ |
0.01 |
$ |
0.03 |
$ |
0.03 |
|
Total common shares outstanding (000s) |
334,866 |
329,313 |
334,866 |
329,313 |
|||||
Payout ratio (3) |
28% |
26% |
25% |
25% |
|||||
Total assets |
$ |
1,585,551 |
$ |
1,093,936 |
$ |
1,585,551 |
$ |
1,093,936 |
|
Net debt (4) |
$ |
526,174 |
$ |
288,464 |
$ |
526,174 |
$ |
288,464 |
Notes: |
|
1 |
Adjusted EBITDA is calculated as net income before interest, taxes, depreciation, share-based compensation, unrealized gains/losses, non-cash |
2 |
Distributable cash flow is calculated as net cash used in operating activities before changes in non-cash working capital and after any |
3 |
Payout Ratio is calculated by expressing dividends declared to shareholders for the period as a percentage of distributable cash flow attributable |
4 |
Net debt is defined as bank debt, convertible debentures and notes payable, less cash. Net Debt is not a standard measure under GAAP. See |
OUTLOOK AND CORPORATE UPDATE
Tidewater has significantly transformed its business over the past 24 months with the successful sanctioning, completion and commissioning of the Pipestone Gas Plant, Pipestone Gas Storage Facility and Pioneer Pipeline, and the acquisition of the Prince George Refinery. Tidewater continues to build an integrated and connected midstream infrastructure network from the well head to the end consumer in order to increase value for its customers and itself. Over the past two years, Tidewater has added over ten new take-or-pay contracts ranging in term from five to fifteen years and including over five new investment-grade counterparties which now account for a significant portion of the Corporation’s cash flows. Tidewater continues to work to offer premium service to its customers through multiple egress options at its facilities (including its Alliance, TC Energy and Storage connections at Pipestone, and its Pioneer, TC Energy and Storage connections at Brazeau) and exposure to premium markets through access to its rail infrastructure and refined product markets.
The completion of the Pipestone Gas Plant, Pipestone Gas Storage Facility, Pioneer Pipeline and the acquisition of the Prince George Refinery have further strengthened Tidewater’s asset mix. With its diverse asset mix, Tidewater is able to generate cash flow in varying commodity price environments and provide its customers opportunities to capitalize on high and low commodity prices.
Over the next 12 to 24 months, Tidewater will be focused on deleveraging and utilizing its anticipated significant increase in cash flows to reduce the Corporation’s leverage ratios back to historic levels with a target of 3.0x to 3.5x Net Debt to Adjusted EBITDA by the end of 2020.
Natural Gas Storage
Tidewater operates three natural gas storage reservoirs at two different facilities; Dimsdale Paddy A (Pipestone Gas Storage Facility), Brazeau Nisku F, and Brazeau Nisku A (Brazeau River Gas Storage Facility).
The third quarter of 2019 saw heightened AECO natural gas price volatility which incented high injection volumes, coupled with withdrawal opportunities, to yield strong quarterly performance.
During the third quarter of 2019, Tidewater completed the facility expansion at the Pipestone Gas Storage Facility, which included the addition of compression and one new well. The Pipestone Gas Storage Facility saw its first injections from the Pipestone Gas Plant in the quarter, as well as its first flows to Chicago through the recently commissioned Saskatoon Mountain meter station via Alliance Pipeline.
The Pipestone Gas Storage Facility is fully contracted with take-or-pay contracts spanning as long as eight-years with multiple investment-grade counterparties. The facility is a significant step forward in Tidewater’s fee-for-service gas storage business and offers producers at the Pipestone Gas Plant significant optionality where the plant has three egress solutions including connections to the TC Energy and Alliance systems, and gas storage.
At Brazeau, both Nisku A and Nisku F facilities have enjoyed connectivity to the newly in-service Pioneer Pipeline, allowing TransAlta to withdraw gas from storage during higher priced periods in October, and are scheduled to continue throughout the upcoming winter.
The Pipestone Gas Storage Facility continues to exceed expectations with all three storage facilities benefiting from volatility in AECO prices. Tidewater gas storage facilities are poised for an active withdrawal season into a recently strengthened winter AECO market.
Pipestone Gas Plant
The Pipestone Gas Plant is designed to process approximately 100 MMcf/day of natural gas. The project includes an acid gas injection well, saltwater disposal well, and pipelines directly connected to the Pipestone Gas Storage Facility, as well as connections to both Alliance and TC Energy pipelines.
Tidewater began processing raw natural gas and natural gas liquids in mid-September 2019. All process units are online and continue to be optimized with reliability and uptime being the key deliverables through the fourth quarter of 2019. The Pipestone Gas Plant is currently processing over 60 MMcf/day of natural gas and throughput continues to increase. Full capacity has been impacted due to construction delays on downstream third-party infrastructure. In addition to the gas plant and gas gathering systems, both TC Energy and Alliance connections are commissioned and are accepting gas flows from both the Pipestone Gas Plant and the Pipestone Gas Storage Facility. Hydrocarbon liquid handling is currently being managed through trucking operations. Egress pipelines for both condensate and NGLs are expected to come online in January 2020, allowing the facility to increase raw volumes and optimize liquid recoveries.
Pioneer Pipeline
The Pioneer Pipeline is a 120km natural gas pipeline connecting Tidewater’s BRC to TransAlta’s generating units at Keephills, and an 11km lateral connecting to Sundance. The Pioneer Pipeline has an initial capacity of 130 MMcf/day supported by a 15 year take-or-pay commitment from TransAlta, which may be expanded to approximately 440 MMcf/day. The pipeline has allowed TransAlta to increase the amount of natural gas it co-fires at its Sundance and Keephills coal-fired units, resulting in lower carbon emissions and costs. TransAlta is a 50% working interest owner in the pipeline.
The Pioneer Pipeline was fully commissioned in the second quarter of 2019 and had average throughput of approximately 40 MMcf/day of natural gas through the start-up phase in the third quarter of 2019. Throughput of approximately 130 MMcf/day of natural gas commenced flowing through the Pioneer Pipeline in the first week of November in conjunction with the 15 year take-or-pay agreement with TransAlta.
Brazeau River Complex and Fractionation Facility
Throughput at the BRC was in-line with the second quarter of 2019 where Tidewater is working diligently with producers to improve netbacks by fully utilizing the BRC’s facilities, including its two NGL pipeline connections, condensate pipeline connection, truck loading and offloading facilities, fractionation, natural gas storage facilities and two natural gas sales pipeline connections.
The Brazeau River Fractionation facility is fully contracted until March 2020, with two investment-grade customers and remained at maximum capacity through the third quarter of 2019.
The Brazeau River Complex remains a flagship asset for Tidewater, offering a full suite of services to producers, including C2, C3, C4 and C5 pipeline connections, NGL fractionation capacity, sweet and sour deep-cut gas processing capability, and two natural gas egress solutions given the BRC’s connection to the NGTL system, and the Pioneer Pipeline.
Prince George Refinery
On November 1, 2019, Tidewater closed the previously announced acquisition of the Prince George Refinery from Husky Energy Inc. (“Husky”), approximately one month ahead of schedule. The Prince George Refinery is a 12.0 Mbbl/day light oil refinery that predominantly produces low sulfur diesel and gasoline, in addition to other products, to supply the greater Prince George region. The Prince George Refinery has significant onsite storage capacity of greater than 1.0 MMbbl and flexible logistics, with pipeline, rail and truck connectivity in place. The Prince George region is generally in short supply of refined products and the Prince George Refinery’s location within the Prince George region makes it a critical piece of infrastructure with a significant logistical advantage to address the demand for these products.
Tidewater also entered into a 5-year offtake agreement with Husky for 90% of the nameplate capacity on diesel and gasoline volumes produced at the Prince George Refinery. The offtake agreement reflects committed volumes that Husky has agreed to purchase, and contains pricing review mechanisms.
CAPITAL PROGRAM
Tidewater has substantially completed its 2019 capital program with the commissioning of three of the largest capital projects in the Corporation’s history related to the Pioneer Pipeline, Pipestone Gas Plant and Pipestone Gas Storage Facility. The Pioneer Pipeline construction is complete and it is fully commissioned and delivering gas to TransAlta’s generating units at Sundance and Keephills at contracted capacity rates. Tidewater’s expansion of its Pipestone Gas Storage Facility is also operational with its 30-inch sales pipeline fully commissioned and sending gas to both Alliance and TC Energy. These three projects are a milestone in Tidewater’s history and will contribute significantly to Tidewater’s cash flow profile, as well as its customer and contract base.
Tidewater’s focus over the next 6 to 12 months is to employ the related cashflow from our large capital projects and the Prince George Refinery acquisition towards deleveraging. Tidewater has decided to delay the expansion at Pipestone (Pipestone Plant 2) until further notice and plans to deploy limited growth capital in 2020 and focus on optimization and small capital projects with 2 to 3 year payouts. Tidewater is committed to reducing overall leverage through 2020 back to its historical levels with a target of 3.0x to 3.5x Net Debt to Adjusted EBITDA by the end of 2020.
Pipestone East Battery Acquisition and Construction
During the quarter, Tidewater announced it had entered into an agreement with Pipestone Energy to acquire a 100% working interest in the Pipestone East Battery which will be located approximately 24 km east of the Pipestone Gas Plant. The total cash consideration payable under the agreement is up to $30 million, which consisted of an initial cash payment of approximately $14 million to purchase existing infrastructure and facility equipment, with a commitment to fund up to $16 million to finalize the design, construction and commissioning of the Pipestone East Battery, which is expected to be completed over the next 12 to 18 months.
Concurrently with the Pipestone East Battery acquisition, Pipestone Energy entered into a 10-year take-or-pay agreement for compression, separation and liquids handling at the Pipestone East Battery and extended its existing 30 MMcf/day take-or-pay commitment at the Pipestone Gas Plant from a 5-year term to a 10-year term.
THIRD QUARTER 2019 EARNINGS CALL
In conjunction with Tidewater’s third quarter 2019 earnings release, investors will have the opportunity to listen to Tidewater senior management review its third quarter results of fiscal 2019 via conference call on Wednesday November 13, 2019 at 11:00 am MDT.
To access the conference call by telephone, dial 647-427-7450 (local / international participant dial in) or 1-888-231-8191 (North American toll free participant dial in). A question and answer session for analysts will follow management’s presentation.
A live audio webcast of the conference call will be available by following this link: https://event.on24.com/wcc/r/2129551/E76DFDC5C3C8C478FDCA5BE939FA6442 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
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 and natural gas liquids (“NGL“) and crude oil space. Its strategy is to profitably grow and create shareholder value through the acquisition and development of oil and gas infrastructure. Tidewater plans to achieve its business objective by providing customers with a full service, vertically integrated value chain through the acquisition and development of oil and gas infrastructure including: gas plants, pipelines, railcars, trucks, export terminals storage facilities and downstream facilities.
Additional information relating to Tidewater is available on SEDAR at www.sedar.com and at www.tidewatermidstream.com.