Tidewater Midstream and Infrastructure Ltd. announces second quarter 2023 results and operational update – Energy News for the Canadian Oil & Gas Industry | EnergyNow.ca

CALGARY, AB, Aug. 10, 2023 /CNW/ – Tidewater Midstream and Infrastructure Ltd. (“Tidewater” or the “Corporation“) (TSX: TWM) has filed its interim consolidated financial statements and Management’s Discussion and Analysis (“MD&A“) for the period ended June 30, 2023.

SECOND-QUARTER 2023 HIGHLIGHTS

• Tidewater executed its once in four year scheduled Prince George Refinery (“PGR”) turnaround during the second quarter. With the PGR being offline for six-weeks, midstream operations generated approximately 90% of the quarter’s gross margin.  Second quarter 2023 consolidated adjusted EBITDA⁽¹⁾ was $44.0 million with a net loss attributable to shareholders of $6.4 million for the quarter.
• Strong financial performance from Tidewater’s natural gas storage assets, coupled with consistent returns from the Pipestone natural gas plant (“Pipestone”) helped offset the impacts that the Alberta wildfires had on Tidewater’s Deep Basin assets, with second quarter deconsolidated adjusted EBITDA⁽¹⁾⁽²⁾ of $35.9 million and a deconsolidated net loss attributable to shareholders of $11.0 million. Despite the PGR turnaround and wildfire impacts during the second quarter, deconsolidated adjusted EBITDA was consistent with the first quarter of 2023.
• Tidewater safely completed its turnaround at PGR during the second quarter of 2023, which was completed on budget and within expected timelines. Refinery throughput returned to nameplate levels in June 2023.
• Following wildfire related outages during the quarter, Deep Basin operations resumed in June 2023 and Tidewater has maintained its deconsolidated maintenance capital guidance for 2023. The Corporation is working with insurance providers on outstanding claims.
• Tidewater Renewables Ltd.’s (“Tidewater Renewables”) Hydrogen Derived Renewable Diesel Complex (“HDRD Complex”) continues its commissioning process with the pre-treatment facility now ready for operations and initial renewable hydrogen expected imminently.  Facility start-up is expected in August with commercial operations to subsequently follow.

“Tidewater’s second quarter presented an abundance of challenges to our management team.  Our first major turnaround at PGR impacted our Q2 financial results, as anticipated, but came in safely, on time and slightly under budget which is a true credit to our team, especially considering it occurred during peak construction on the HDRD Complex at the same site. The wildfires shut down our Brazeau facility during the quarter but fortunately our Emergency Response Team ensured the safety of our staff and our operations crews were able to get the facility back into service by the end of the quarter. I’d like to thank our staff for remaining focused on our core businesses during this time and maintaining the steady performance of our midstream assets as well as successfully capitalizing on natural gas price volatility with our storage assets.  Having navigated through the first half of 2023, we are excited to have all of our assets back up to full operations and we expect to be able to drive significant shareholder value in the back half of the year from both the commercialization of the HDRD Complex and the conclusion of our asset review.” stated Interim CEO Rob Colcleugh.

CONSOLIDATED AND DECONSOLIDATED FINANCIAL HIGHLIGHTS

DOWNSTREAM

Total second quarter throughput at PGR averaged approximately 4,363 bbl/day, which is lower than historical averages due to the planned turnaround during the quarter. This capital investment in Tidewater’s core downstream asset will support PGR’s ability to maintain throughput at or near its nameplate capacity for the next four years.

PGR Historical Performance:

Financial results at the PGR were impacted by reduced throughput at the refinery due to the planned turnaround during the quarter. The turnaround was timed to coincide with spring breakup, a lower demand period for diesel. Lower diesel rack pricing contributed to a 6% decrease in the Prince George crack spread from the first quarter of 2023, which averaged $85/bbl during the second quarter. The onset of summer driving season towards the end of the second quarter led to increasing gasoline demand following turnaround activities.

MIDSTREAM

During the second quarter of 2023, total natural gas throughput volumes at the Corporation’s midstream facilities were approximately 321 MMcf/day, a decrease of 18% over the previous quarter as a result of wildfires in the Deep Basin area. Second quarter 2023 midstream gross margin of $29.5 million represents approximately 90% of Tidewater’s total gross margin for the quarter.

Midstream Gas Plant Inlet Volumes:

Pipestone Natural Gas Plant

Despite consistent Pipestone plant availability during the second quarter, Pipestone’s average daily throughput was impacted by scheduled maintenance and cautionary measures during extreme early summer heat.

Brazeau River Complex and Fractionation Facility

During the second quarter the Brazeau River Complex (“BRC”) facility underwent an emergency shut down due to a mandatory evacuation measure announced by local authorities due to local wildfires. Wildfire threat, lost power supply and the evacuation measure impacted both second quarter processing and fractionation results.  Second quarter BRC throughput averaged 98 MMcf/day during the second quarter of 2023. Second quarter BRC fractionation average utilization was 63%. Tidewater expects the financial impact of the wildfires to be substantially covered by insurance proceeds.

The BRC remains one of Tidewater’s core assets, with the fractionation facility serving as a key asset for Tidewater’s natural gas liquids marketing business. The facility is well positioned in the Deep Basin by offering producers multiple natural gas liquids egress options through its fractionation facility, truck loading and offloading facilities, natural gas liquids pipeline connections, along with two natural gas egress connections.

Ram River Gas Plant

The Ram River natural gas processing facility averaged throughput of 110 MMcf/day during the second quarter of 2023, which represents a 41% increase over the second quarter of 2022. Tidewater 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

Tidewater’s 2023 disciplined approach to growth has resulted in a primary focus on Tidewater Renewable’s HDRD Complex. Tidewater’s 2023 growth capital includes minor spending on heat exchangers, catalyst upgrades and tank upgrades at the PGR and increased natural gas liquids storage capacity at the BRC.

Tidewater’s 2023 maintenance capital program is weighted to the first half of 2023, with consolidated maintenance capital incurred to date totalling $41.8 million during the quarter and $55.8 for the six months ended June 30, 2023. The majority of these costs relate to the PGR turnaround, which was completed on budget and within scheduled timelines.

OUTLOOK

Tidewater’s core midstream and downstream facilities resumed operations in June 2023 to coincide with increased refined product demand during the summer driving season. With the PGR resuming normal operations, the Corporation’s 2023 consolidated adjusted EBITDA is expected to range from $190 – $210 million. The Corporation expects to refine its consolidated adjusted EBITDA outlook, following commencement of commercial operations at Tidewater Renewable’s HDRD Complex.

The majority of Tidewater’s 2023 maintenance capital program was completed during the first half of the year and focused primarily on the PGR turnaround. Wildfire activity during the quarter resulted in unbudgeted maintenance expenditures. Tidewater now expects full year 2023 maintenance capital to be at the higher end of the previously announced annual deconsolidated maintenance capital guidance of $55 million to $65 million.

Tidewater Renewables is expected to begin producing renewable diesel in August 2023, with commercial operations ramping up in the third quarter of 2023. The facility is expected to be one of the largest generators of credits under the British Columbia’s Low Carbon Fuel Standard and the Canadian Clean Fuel Regulations. Net project costs are expected to be in line with Tidewater Renewable’s previous guidance and the project’s economics remain attractive.

The Corporation continues to make progress on partnerships, joint venture and other financing alternatives to support its Pipestone expansion (“Pipestone Phase 2”). Pipestone Phase 2 would add 100 MMcf/day of sour natural gas processing to the facility, enlarging the Corporation’s footprint in the liquids rich Montney region with its existing capacity and natural gas storage assets.

SECOND QUARTER 2023 EARNINGS CALL

In conjunction with the earnings release, Tidewater’s executive will hold a call to review its second quarter 2023 results via conference call on Thursday August 10, 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/kLKWR9QRZrg 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 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 Through 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 and in other materials disclosed by the Corporation, Tidewater uses a number of non-GAAP financial measures, non-GAAP financial ratios and capital management 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.sedarplus.ca.

Non-GAAP 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 (loss) income before finance costs, taxes, depreciation, 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 (loss) income and comprehensive (loss) income. The adjustments made to net income, as described above, are also made to share of profit from investments in equity accounted investees.

Consolidated adjusted EBITDA is used by management to set objectives, make operating and capital investment decisions, monitor debt covenants and assess performance. In addition to its use by management, Tidewater also believes consolidated adjusted EBITDA is a measure widely used by securities analysts, investors, lending institutions, and others to evaluate the financial performance of the Corporation and other companies in the midstream industry. The Corporation issues guidance on this key measure. As a result, consolidated adjusted EBITDA is presented as a relevant measure in the MD&A to assist analysts and readers in assessing the performance of the Corporation as seen from management’s perspective. In addition to reviewing consolidated adjusted EBITDA, management reviews deconsolidated adjusted EBITDA to highlight the Corporation’s performance, excluding the portion of consolidated adjusted EBITDA attributable to Tidewater Renewables. Investors should be cautioned that consolidated adjusted EBITDA and deconsolidated adjusted EBITDA should not be construed as alternatives to net (loss) income, net cash provided by operating activities or other measures of financial results determined in accordance with GAAP as an indicator of the Corporation’s performance and may not be comparable to companies with similar calculations.

The following table reconciles net (loss) income, the nearest GAAP measure, to adjusted EBITDA:

Supplementary Financial Measures 

“Growth capital” expenditures are generally defined as expenditures which are recoverable or incrementally increase cash flow or earnings potential of assets, expand the capacity of current operations or significantly extend the life of existing assets. This measure is used by the investment community to assess the extent of discretionary capital spending.

“Maintenance capital” expenditures are generally defined as expenditures which support and/or maintain the current capacity, cash flow or earnings potential of existing assets without the associated benefits characteristic of growth capital expenditures. These expenditures include major inspections and overhaul costs that are required on a periodic basis. This measure is used by the investment community to assess the extent of non-discretionary capital spending. Maintenance capital is included in the calculation of distributable cash flow.

Deconsolidated “net (loss) income attributable to shareholders” is comprised of net income or loss attributable to shareholders, as determined in accordance with IFRS, less the net income or loss of Tidewater Renewables attributed to the shareholders of Tidewater.