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.
(1) |
Adjusted EBITDA, distributable cash flow, payout ratio and consolidated net debt used throughout this press release are non-GAAP financial measures, non-GAAP financial ratios or capital management measures. The most directly comparable GAAP measure for Adjusted EBITDA is net income (loss) and for distributable cash flow is net cash provided by operating activities. See the “Non-GAAP and other Financial Measures” in the Corporation’s press release and MD&A for information on each non-GAAP financial measure or ratio. |
CONSOLIDATED FINANCIAL HIGHLIGHTS
(in thousands of Canadian dollars except per share |
Three months ended |
Nine months ended |
|||||||||
2022 |
2021 |
2022 |
2021 |
||||||||
Revenue |
$ |
712,127 |
$ |
433,961 |
$ |
2,164,116 |
$ |
1,163,781 |
|||
Net income (loss) and comprehensive net |
$ |
(22,035) |
$ |
3,440 |
$ |
43,740 |
$ |
75,908 |
|||
Net income (loss) attributable to |
$ |
(18,847) |
$ |
1,797 |
$ |
38,440 |
$ |
74,473 |
|||
Basic net income (loss) attributable to |
$ |
(0.05) |
$ |
0.01 |
$ |
0.11 |
$ |
0.22 |
|||
Diluted net income (loss) attributable to |
$ |
(0.05) |
$ |
0.01 |
$ |
0.09 |
$ |
0.19 |
|||
Consolidated Adjusted EBITDA (1) |
$ |
62,080 |
$ |
53,076 |
$ |
189,408 |
$ |
156,483 |
|||
Net cash provided by (used in) operating |
$ |
67,035 |
$ |
(3,827) |
$ |
176,262 |
$ |
94,030 |
|||
Distributable cash flow attributable to |
$ |
9,228 |
$ |
15,834 |
$ |
62,507 |
$ |
50,023 |
|||
Distributable cash flow per common share |
$ |
0.02 |
$ |
0.05 |
$ |
0.18 |
$ |
0.15 |
|||
Distributable cash flow per common share |
$ |
0.02 |
$ |
0.04 |
$ |
0.14 |
$ |
0.12 |
|||
Dividends declared |
$ |
4,228 |
$ |
3,403 |
$ |
11,065 |
$ |
10,188 |
|||
Dividends declared per common share |
$ |
0.01 |
$ |
0.01 |
$ |
0.03 |
$ |
0.03 |
|||
Total common shares outstanding (000s) |
422,774 |
340,314 |
422,774 |
340,314 |
|||||||
Payout ratio (1) |
46 % |
21 % |
18 % |
20 % |
|||||||
Total assets |
$ |
2,175,937 |
$ |
1,925,201 |
$ |
2,175,937 |
$ |
1,925,201 |
|||
Net debt (1) |
$ |
647,038 |
$ |
643,363 |
$ |
647,038 |
$ |
643,363 |
(1) See “Non-GAAP and Other Financial Measures” in the Corporation’s press release and MD&A. |
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.
(in thousands of Canadian dollars) |
Three months ended |
Nine months ended |
||||||||
2022 |
2021 |
2022 |
2021 |
|||||||
Deconsolidated Adjusted EBITDA |
$ |
45,996 |
$ |
47,746 |
$ |
143,685 |
$ |
151,153 |
||
Deconsolidated net debt |
$ |
522,727 |
$ |
609,437 |
$ |
522,727 |
$ |
609,437 |
||
Ownership in Tidewater Renewables |
69 % |
69 % |
69 % |
69 % |
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:
Q3 2022 |
Q2 2022 |
Q1 2022 |
Q4 2021 |
Q3 2021 |
Q2 2021 |
Q1 2021 |
Q4 2020 |
|
Daily throughput (bbl) |
11,860 |
11,810 |
11,745 |
12,245 |
12,209 |
11,459 |
12,095 |
12,187 |
Refinery Yield (1) |
||||||||
Diesel |
45 % |
44 % |
48 % |
47 % |
45 % |
45 % |
49 % |
49 % |
Gasoline |
41 % |
42 % |
40 % |
40 % |
42 % |
43 % |
39 % |
39 % |
Other (2) |
14 % |
14 % |
12 % |
13 % |
13 % |
12 % |
12 % |
12 % |
(1) Refinery yield includes crude, canola and intermediates. |
(2) Other refers to heavy fuel oil (HFO), LPG and feedstock consumed to fuel the refinery. |
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:
Three months ended |
Nine months ended |
||||||||
(in thousands of Canadian dollars) |
2022 |
2021 |
2022 |
2021 |
|||||
Net income (loss) |
$ |
(22,035) |
$ |
3,440 |
$ |
43,740 |
$ |
75,908 |
|
Deferred income tax (recovery) expense |
(7,005) |
1,138 |
16,508 |
20,215 |
|||||
Depreciation |
20,793 |
19,975 |
60,809 |
61,213 |
|||||
Finance costs |
17,345 |
16,644 |
51,321 |
56,998 |
|||||
Share-based compensation |
3,411 |
1,584 |
10,710 |
4,640 |
|||||
Loss (gain) on sale of assets |
7,149 |
(1,548) |
9,399 |
(26,258) |
|||||
Unrealized loss (gain) on derivative contracts |
38,677 |
9,392 |
(10,206) |
(44,407) |
|||||
Transaction costs |
2,878 |
908 |
3,687 |
2,528 |
|||||
Non-recurring transactions |
983 |
112 |
1,468 |
1,441 |
|||||
Adjustment to share of profit from equity |
(116) |
1,431 |
1,972 |
4,205 |
|||||
Consolidated Adjusted EBITDA |
$ |
62,080 |
$ |
53,076 |
$ |
189,408 |
$ |
156,483 |
|
Less: Consolidated Adjusted EBITDA |
(16,084) |
(5,330) |
(45,723) |
(5,330) |
|||||
Deconsolidated Adjusted EBITDA |
$ |
45,996 |
$ |
47,746 |
$ |
143,685 |
$ |
151,153 |
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:
Three months ended |
Nine months ended |
|||||||||
(in thousands of Canadian dollars) |
2022 |
2021 |
2022 |
2021 |
||||||
Net cash provided by (used in) operating |
$ |
67,035 |
$ |
(3,827) |
$ |
176,262 |
$ |
94.030 |
||
Add (deduct): |
||||||||||
Changes in non-cash working capital |
(13,792) |
50,353 |
(530) |
47,816 |
||||||
Transaction costs |
2,878 |
908 |
3,687 |
2,528 |
||||||
Non-recurring transactions |
983 |
112 |
1,468 |
1,441 |
||||||
Interest and financing charges |
(10,564) |
(11,310) |
(31,322) |
(41,293) |
||||||
Payment of lease liabilities, net of sublease |
(11,679) |
(12,679) |
(36,072) |
(39,155) |
||||||
Maintenance capital |
(22,693) |
(6,502) |
(42,069) |
(14,123) |
||||||
Tidewater Renewables’ distributable cash flow to |
(2,940) |
(1,221) |
(8,917) |
(1,221) |
||||||
Distributable cash flow attributable to |
$ |
9,228 |
$ |
15,834 |
$ |
62,507 |
$ |
50,023 |
||
Non-GAAP Financial Ratios
Payout Ratio
Three months ended |
Nine months ended |
||||||||||
(in thousands of Canadian dollars except percentage |
2022 |
2021 |
2022 |
2021 |
|||||||
Dividends declared |
$ |
4,228 |
$ |
3,403 |
$ |
11,065 |
$ |
10,188 |
|||
Distributable cash flow attributable to |
$ |
9, 228 |
$ |
15,834 |
$ |
62,507 |
$ |
50,023 |
|||
Payout ratio |
46 % |
21 % |
18 % |
20 % |
|||||||
Distributable cash flow per common share
Three months ended |
Nine months ended |
||||||||||
(in thousands of Canadian dollars except per share |
2022 |
2021 |
2022 |
2021 |
|||||||
Distributable cash flow attributable to |
$ |
9,228 |
$ |
15,834 |
$ |
62,507 |
$ |
50,023 |
|||
Distributable cash flow per common share |
$ |
0.02 |
$ |
0.05 |
$ |
0.18 |
$ |
0.15 |
|||
Distributable cash flow per common share |
$ |
0.02 |
$ |
0.04 |
$ |
0.14 |
$ |
0.12 |
|||
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:
(in thousands of Canadian dollars) |
September 30, 2022 |
September 30, 2021 |
||
Tidewater Midstream Senior Credit Facility |
$ |
458,986 |
$ |
408,084 |
Tidewater Renewables Senior Credit Facility |
110,143 |
42,000 |
||
RNG Credit Facility |
15,550 |
– |
||
Second Lien Term Loan – principal |
– |
20,000 |
||
Notes payable |
– |
124,055 |
||
Convertible debentures – principal |
75,000 |
75,000 |
||
Cash |
(12,641) |
(25,776) |
||
Consolidated net debt |
$ |
647,038 |
$ |
643,363 |
Less: Senior Credit Facility – Tidewater Renewables |
(110,143) |
(42,000) |
||
Less: RNG Credit Facility – Tidewater Renewables |
(15,550) |
– |
||
Add: Cash – Tidewater Renewables |
1,382 |
8,074 |
||
Deconsolidated net debt |
$ |
522,727 |
$ |
609,437 |