(TSX: TWM)
CALGARY, AB, Aug. 15, 2024 /CNW/ - Tidewater Midstream and Infrastructure Ltd. ("Tidewater" or the "Corporation") (TSX: TWM) has filed its interim consolidated financial statements and Management Discussion and Analysis ("MD&A") for the three month period ended June 30, 2024.
SECOND QUARTER 2024 HIGHLIGHTS
- Net Income attributable to shareholders increased by $1.7 million to a net loss of $4.7 million in the second quarter 2024, from a net loss of $6.4 million in the same period of 2023. The improvement was largely due to higher operating income, offset in part by unfavorable changes in the fair value of derivative contracts, and the absence of a deferred income tax recovery.
- Consolidated adjusted EBITDA(1)[1]was $45.3 million for the second quarter of 2024, compared to $29.3 million in the second quarter of 2023, proforma for Pipestone and Dimsdale, which were divested in December 2023.
- On June 4, 2024, Tidewater Midstream completed the issuance of $100 million convertible unsecured subordinated debentures (the "Convertible Debentures") at a price of $1,000 per debenture. The Convertible Debentures mature on June 30, 2029, and accrue interest at 8% per annum, payable semi-annually, on the last day of June and December, commencing December 31, 2024. Proceeds from the issuance were used to satisfy and discharge Tidewater Midstream's $75 million convertible debentures due September 30, 2024, with the remaining proceeds used for general corporate purposes.
- In early May 2024, Tidewater Midstream successfully completed the previously announced three-week turnaround at the Brazeau River Complex and Fractionation Facility (the "BRC") safely, on time and approximately $5.0 million below initial cost expectations.
- The Renewable Diesel & Renewable Hydrogen Complex (the "HDRD Complex") averaged daily throughput of approximately 2,925 bbl/d, representing a 98% utilization rate. Consistent with previous guidance, the HDRD Complex is expected to exceed an average full year utilization rate of 85%, representing an average daily throughput of 2,550 bbl/d.
- The Special Committees and Boards of Directors of both Tidewater Midstream and Tidewater Renewables Ltd. (the "Parties") have approved entering into a related party purchase agreement, whereby Tidewater Midstream will acquire from Tidewater Renewables Ltd. ("Tidewater Renewables") various operated assets at the Prince George Refinery (the "PGR") and the BRC, that were previously sold to Tidewater Renewables during its initial public offering. Tidewater Midstream will also acquire the canola co-processing and fluid catalytic cracking ("FCC") co-processing units. Consideration for this related party transaction will consist of an upfront cash payment by Tidewater Midstream of $129.7 million and a commitment to purchase a minimum of $80.7 million BC LCFS credits, as they are produced by Tidewater Renewables, over the next nine months, assuming the HDRD complex continues to operate at over 90% utilization (the "Proposed Transaction"). Tidewater Midstream expects to finance the transaction through operating cash flow, a $25.0 million increase in its revolving credit facility and a $150.0 million term loan. Tidewater Renewables will use the proceeds to repay amounts outstanding on its Senior Credit Facility. This transaction is expected to close during the third quarter of 2024, subject to completion of documentation, financing and regulatory approval.
- Given the uncertainty surrounding the BC LCFS credit market, the Corporation is revising its previously issued 2024 consolidated adjusted EBITDA(1)[2]guidance to $130 million to $150 million (previously $150 million to $170 million), assuming completion of the Proposed Transaction during the third quarter of 2024 and crack spreads averaging in the $80 to $90 /bbl range. Full-year 2024 consolidated maintenance capital is expected to be in the range of $35 million to $40 million, consistent with previous guidance.
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1Non-GAAP financial measure. See the "Non-GAAP Measures" section of this Press Release |
CEO Message:
"During the second quarter, we achieved several milestones. I am very proud of all the hard work that went into the successful turnaround at the BRC. Along with being completed on time and below initial cost expectations, the turnaround was completed safely with no lost time injuries. Safety is a top priority at Tidewater and completing the turnaround with no lost time injuries is a great accomplishment by the midstream team. On the downstream side of the business, the PGR and the HDRD complex continued to run near capacity.
As we exited the second quarter, it became apparent that depressed low carbon fuel credit prices in the US were going to have an impact on Canadian low carbon fuel credit prices. The high price BC credit market is proving to be an attractive outlet for US producers of renewable fuel, who are able to take advantage of US subsidies and earn Canadian compliance credits. The importation of substantial volumes of subsidized US renewable diesel into BC has significantly reduced the demand by BC LCFS obligated parties for compliance credits. The result has been that Tidewater Renewables was unable to contract BC LCFS credit sales for the third quarter of 2024.
The revenue generated from future BC LCFS credit sales makes up a significant portion of Tidewater Renewables' overall corporate revenue and cash flow, and the inability to generate any BC LCFS credit-based revenue would have had pronounced negative implications for Tidewater Renewables underlying business. To remedy this, Tidewater Renewables' Board of Directors formed an independent special committee, which received independent financial and legal advice, to evaluate various liquidity alternatives and based on an extensive review felt the proposed solution provided the best option.
Tidewater Renewables has also approached the Government of British Columbia to discuss needed changes within the low carbon fuel programs to better support a domestic renewable fuel industry. As the market corrects, and potential regulatory changes are implemented, we believe the proposed transaction will provide significant benefits to both entities. Tidewater Midstream will benefit from a simplified corporate structure and re-acquire a significant amount of deconsolidated EBITDA(1) that was previously dropped down to Tidewater Renewables as part of its initial public offering. Going forward, Tidewater Renewables will be able focus all of its efforts on its renewable fuels business, which consists of the HDRD complex and the proposed sustainable aviation fuel ("SAF") project, where the front-end engineering and design continues to progress." - stated Jeremy Baines, CEO.
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1Non-GAAP financial measure. See the "Non-GAAP Measures" section of this news release. |
CONSOLIDATED AND DECONSOLIDATED FINANCIAL HIGHLIGHTS
Three months ended June 30 | ||||||||
Tidewater Deconsolidated (2) | Tidewater Consolidated | |||||||
(in millions of Canadian dollars except per share information) | 2024 | 2023 | 2024 | 2023 | ||||
Net loss attributable to shareholders | $ | (9.9) | $ | (11.0) | $ | (4.7) | $ | (6.4) |
Net loss attributable to shareholders per share - basic | $ | (0.02) | $ | (0.03) | $ | (0.01) | $ | (0.02) |
Adjusted EBITDA (1) | $ | 15.8 | $ | 35.9 | $ | 45.3 | $ | 44.0 |
Distributable cash flow attributable to shareholders (1) | $ | (9.9) | $ | (26.4) | $ | 4.0 | $ | (31.8) |
Distributable cash flow per share - basic (1) | $ | (0.02) | $ | (0.06) | $ | 0.01 | $ | (0.07) |
Net debt (3) | $ | 189.4 | $ | 595.4 | $ | 505.9 | $ | 885.5 |
Total capital expenditures | $ | 13.2 | $ | 40.1 | $ | 21.7 | $ | 96.0 |
(1) Non-GAAP financial measures. See the "Non-GAAP Measures" section of this News Release. (2) Deconsolidated results exclude the results of Tidewater Renewables. See the "Non-GAAP Measures" section of this News Release for information on deconsolidated measures. (3) Capital management measure. See the "Non-GAAP Measures" section of this News Release. | ||||||||
Six months ended June 30 | ||||||||
Tidewater Deconsolidated (2) | Tidewater Consolidated | |||||||
(in millions of Canadian dollars except per share information) | 2024 | 2023 | 2024 | 2023 | ||||
Net loss attributable to shareholders | $ | (29.9) | $ | (23.1) | $ | (16.0) | $ | (31.2) |
Net loss attributable to shareholders per share - basic | $ | (0.07) | $ | (0.05) | $ | (0.04) | $ | (0.07) |
Adjusted EBITDA (1) | $ | 30.3 | $ | 72.2 | $ | 85.1 | $ | 92.9 |
Distributable cash flow attributable to shareholders (1) | $ | (12.9) | $ | (28.5) | $ | 9.8 | $ | (30.3) |
Distributable cash flow per share - basic (1) | $ | (0.03) | $ | (0.07) | $ | 0.02 | $ | (0.07) |
Net debt (3) | $ | 189.4 | $ | 595.4 | $ | 505.9 | $ | 888.5 |
Total capital expenditures | $ | 15.5 | $ | 62.0 | $ | 29.8 | $ | 202.1 |
(1) Non-GAAP financial measures. See the "Non-GAAP Measures" section of this News Release. (2) Deconsolidated results exclude the results of Tidewater Renewables. See the "Non-GAAP Measures" section of this News Release for information on deconsolidated measures. (3) Capital management measure. See the "Non-GAAP Measures" section of this News Release. | ||||||||
STRATEGIC UPDATE
Tidewater's strategy is supported by three key operational initiatives: maintaining safe and reliable operations, generating return on assets through maximizing facility throughput and optimizing our existing asset base, and achieving synergies through corporate integration. The following progress was made on these initiatives in 2024 year to date:
Maintain safe and reliable operations | • No lost time incidents during the second quarter of 2024. • Safe and successful execution of BRC turnaround. • The PGR and HDRD complex operating at or slightly above design capacity |
Return on assets and optimizing existing asset base | • Continued the engineering and progressed site evaluation for the SAF project. • Progressing the marketing plan for the PGR and the HDRD post Cenovus offtake. |
Corporate integration and synergies | • Continuing to initiate additional profitability enhancement initiatives. • The Special Committees and Boards of Directors of both Tidewater Midstream and Tidewater Renewables have approved entering into a related party agreement whereby Tidewater Midstream will acquire from Tidewater Renewables various operated assets at the PGR and the BRC, that were previously sold to Tidewater Renewables during its initial public offering. Tidewater Midstream will also acquire the canola co-processing and FCC co-processing units. This proposed transaction is expected to close during the third quarter of 2024, subject to completion of documentation, financing and regulatory approval. |
PROPOSED TRANSACTION BETWEEN TIDEWATER MIDSTREAM AND TIDEWATER RENEWABLES
During the first and second quarters of 2024, Tidewater Renewables forward sold BC LCFS emission credits at an average price of approximately $450 per credit to various counterparties. Towards the end of the second quarter of 2024, when Tidewater Renewables approached numerous counterparties to contract BC LCFS credit sales for the third quarter of 2024, it was unable to secure any bids. BC LCFS credit sales prices for July 2024 transactions, reported by the Government of British Columbia in August 2024, confirmed that only two BC LCFS emission credit sales transacted at an average price of $207 per credit. This sharp decline in BC LCFS emission credit prices is believed to be a function of large volumes of subsidized US renewable diesel physically moving out of the oversupplied US renewable fuel market and into the higher value British Columbia market. Aggravating the situation, in management's view, are overlapping US and Canadian low carbon fuel policies which allow US renewable diesel producers to take advantage of US subsidies and compliance markets and then import their volumes to Canada and generate BC LCFS emission credits at the point of sale.
In the long-term, Tidewater Renewables expects that the combination of supply and demand fundamentals forcing the shut-in of high-cost US renewable fuel production, tightening California LCFS compliance obligations, and tightening BC LCFS compliance obligations will ease the pressure on BC LCFS credit prices. In addition, cold weather diesel specifications are expected to limit physical imports of renewable diesel in the fourth quarter of 2024 and first quarter of 2025.
However, the unexpected market situation has created a liquidity issue for Tidewater Renewables. Tidewater Renewables relies heavily on revenue generated from environmental attributes such as the BC LCFS emission credits and CFR emission credits. Tidewater Renewables has approached the Government of British Columbia to discuss potential changes the government could make to the BC LCFS credit market in an attempt to improve liquidity and pricing stability for BC LCFS capital and operating emission credits.
As Tidewater Renewables had no forward sales contracted for BC LCFS credits expected to be granted and/or generated from renewable diesel sales for the third quarter of 2024, management of Tidewater Renewables evaluated alternative liquidity sources, including a transaction whereby Tidewater Midstream would acquire certain assets from Tidewater Renewables in exchange for cash proceeds and near-term BC LCFS credit purchases (the "Proposed Transaction"), while the sector awaits a longer term solution. In connection with the Proposed Transaction, Tidewater Renewables' Board of Directors established an independent special committee (the "Renewables Special Committee") to evaluate the Proposed Transaction and to negotiate the terms thereof with the independent special committee established by the Board of Directors of Tidewater Midstream (the "Midstream Special Committee") and to assess alternative liquidity sources. The Renewables Special Committee has retained a financial advisor and legal counsel in connection with the Proposed Transaction.
Following discussions and negotiations between the Renewables Special Committee and Midstream Special Committee, which also received independent legal advice, Tidewater Renewables and Tidewater Midstream have announced their commitment to enter into a related party agreement, approved by both special committees and both Boards of Directors, whereby Tidewater Midstream will acquire various assets at the PGR and BRC that were previously sold to Tidewater Renewables pursuant to its initial public offering and commit to future BC LCFS credit purchases from Tidewater Renewables. Tidewater Midstream will also acquire the canola co-processing and FCC co-processing units. These assets generate annual adjusted EBITDA(1)[3]of $40.0 million to $50.0 million. The estimated consideration for the Proposed Transaction consists of an upfront cash payment of $129.7 million and a commitment by Tidewater Midstream to purchase a minimum of $80.7 million for BC LCFS emission credits, as they are produced by Tidewater Renewables over the next nine months, assuming HDRD continues to operate above 90% utilization. Tidewater Midstream expects to finance the Proposed Transaction through operating cash flow, a $25 million increase in its revolving credit facility and $150 million term loan. The estimated proceeds will be used to repay amounts outstanding on Tidewater Renewables Senior Credit facility, which will provide an immediate improvement to Tidewater Renewables' liquidity issues and leverage profile and a reduction to go forward cash interest costs.
The completion of the Proposed Transaction is contingent upon Tidewater Renewables securing all requisite consents and approvals from the TSX, both Tidewater Renewables and Tidewater Midstream obtaining financing approval, and the completion of final documentation. Tidewater Renewables is exempt from the valuation and majority of the minority approval requirements stipulated in Section 5.4 and 5.6 of Multilateral Instrument 61-101, Protection of Minority Security Holders in Special Transactions ("MI 61-101"), due to the "financial hardship" exemption provided in Section 5.5(g) and 5.7(1)(e) of MI 61-101.
The Corporation expects to execute definitive agreements and close the Proposed Transaction during the third quarter of 2024.
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1Non-GAAP financial measure. See the "Non-GAAP Measures" section of this news release. |
Three months ended | Six months ended June 30, | |||||||
(in millions of Canadian dollars) | 2024 | 2023 | 2024 | 2023 | ||||
Growth capital (1) | $ | 7.6 | $ | 54.2 | $ | 13.5 | $ | 146.3 |
Maintenance capital (1) | 14.1 | 41.8 | 16.3 | 55.8 | ||||
Total capital expenditures | $ | 21.7 | $ | 96.0 | $ | 29.8 | $ | 202.1 |
Capital emissions credits awarded (2) | $ | (12.9) | $ | (76.6) | $ | (33.6) | $ | (78.6) |
(1) | Supplementary financial measures. See the "Non-GAAP Measures" section of this News Release. |
(2) | During the three and six months ended June 30, 2024, $18.9 million and $21.2 million of capital emission credits were monetized. |
DOWNSTREAM
PGR
During the second quarter of 2024, the PGR had strong operational performance with throughput of 12,022 bbl/day, relatively consistent with the first quarter of 2024, and 176% higher than the second quarter of 2023 during which a six-week scheduled turnaround was being performed at the refinery. The PGR is currently on a four-year turnaround cycle, with the next scheduled turnaround in the second quarter of 2027.
HDRD Complex
During the second quarter of 2024, the HDRD Complex averaged daily throughput of approximately 2,925 bbl/d, representing a 98% utilization rate. The Corporation expects the HDRD Complex to exceed a full-year utilization rate of 85%, representing an average daily throughput of 2,550 bbl/d.
PGR Historical Performance:
Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 2024 | |
Daily throughput (bbl) | 11,860 | 11,715 | 11,700 | 4,363 | 12,756 | 12,242 | 12,399 | 12,022 |
Refinery Yield (1) | ||||||||
Diesel | 45 % | 47 % | 45 % | 46 % | 44 % | 48 % | 46 % | 46 % |
Gasoline | 41 % | 42 % | 42 % | 41 % | 42 % | 40 % | 41 % | 39 % |
Other (2) | 14 % | 11 % | 13 % | 13 % | 14 % | 12 % | 13 % | 15 % |
(1) | Refinery yield includes crude, canola and intermediates. |
(2) | Other refers to heavy fuel oil (HFO), liquified petroleum gas and feedstock consumed to fuel the refinery. |
MIDSTREAM
During the second quarter of 2024, total throughput volumes at the midstream facilities were approximately 253 MMcf/day, compared to 290 MMcf/day in the same period of 2023, excluding the results of the Pipestone natural gas plant, which was divested in the fourth quarter of 2023. The lower throughput was primarily driven by the previously mentioned BRC turnaround, as well as reduced producer volumes resulting from depressed natural gas prices.
Midstream Gas Plant Volumes:
Q3 | Q4 | Q1 | Q2 | Q3 | Q4 | Q1 | Q2 2024 | |
Gross throughput (MMcf/d) | 413 | 436 | 461 | 387 | 407 | 398 | 302 | 253 |
BRC(1) | 161 | 159 | 158 | 98 | 155 | 134 | 134 | 90 |
Ram River | 102 | 104 | 112 | 110 | 88 | 96 | 96 | 93 |
Other(2) | 81 | 84 | 87 | 82 | 69 | 78 | 72 | 70 |
(1) BRC Inlet volumes include volumes at the BRC straddle plant. (2) Inlet volumes include throughput at Tidewater's extraction facilities |
Brazeau River Complex and Fractionation Facility
During the second quarter of 2024, a scheduled three-week turnaround took place at the BRC. Gas processing and liquids fractionation activities were limited during this maintenance period and resulted in lower volumes coming through the facility. The BRC gas processing facility had throughput of 90 MMcf/day in the second quarter of 2024, 44 MMcf/day lower than the first quarter of 2024, and 8MMcf/day lower than the second quarter of 2023. The BRC fractionation facility utilization averaged 68% in the second quarter of 2024, compared to 83% utilization in the first quarter of 2024, and 63% in the second quarter of 2023.
The lower current quarter volume and fractionation facility utilization compared to the first quarter of 2024 was due to the aforementioned scheduled turnaround. Variances compared to the second quarter of 2023 were narrower as gas processing and fractionation facility utilization in the second quarter of 2023 were impacted by wildfires and the mandatory evacuation of the complex for 12 days and the loss of key utilities for an additional 11 days.
Ram River Gas Plant
The Ram River Gas Plant had throughput of 93 MMcf/d in the second quarter of 2024, slightly lower than the 96 MMcf/day during the first quarter of 2024, and 17 MMcf/d lower compared to 110 MMcf/d in the second quarter of 2023. Throughput during the second quarter of 2024 decreased mainly due to lower producer volume resulting from a decrease in natural gas prices and natural area decline. During the second quarter of 2023, outages at third party facilities in the region brought additional volumes to the Ram River Gas Plant on a temporary basis.
Subsequent to the quarter, due to ongoing depressed natural gas prices, producer volume continued to decline and resulted in the temporary shut-in of gas processing operations at the Ram River Gas Plant. Natural gas prices are forecasted to recover in late 2024, and gas processing operations are expected to resume as producer activity restarts. Sulfur handling activities continue to be operational.
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.
OUTLOOK AND CAPITAL PROGRAM
Given the current uncertainty surrounding the BC LCFS credit market, the Corporation is revising its previously issued 2024 consolidated adjusted EBITDA(1) guidance to $130 million to $150 million (previously $150 million to $170 million), assuming completion of the Proposed Transaction and crack spreads averaging in the $80 to $90 /bbl range. Full-year 2024 consolidated maintenance capital is expected to be in the range of $35 million to $40 million, consistent with previous guidance.
SECOND QUARTER 2024 EARNINGS CALL
In conjunction with the earnings release, Tidewater's executives will hold a call to review its second quarter 2024 results via conference call on Thursday, August 15, 2024 at 11:00 am MDT (1:00 pm EDT).
To access the conference call by telephone, dial 289-819-1350 (local / international participant dial in) or 1-800-836-8184 (North American toll-free participant dial in). A question and answer session for analysts will follow the management's presentation.
A live audio webcast of the conference call will be available by following this link: https://app.webinar.net/zKyPrzRrpV7 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 join 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 products, 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".
Jeremy Baines Aaron Ames
Chief Executive Officer Interim Chief Financial Officer
Tidewater Midstream & Infrastructure Ltd. Tidewater Midstream & Infrastructure Ltd
NON-GAAP MEASURES
Throughout this news release and in other materials disclosed by the Corporation, Tidewater uses a number of non-GAAP financial measures, non-GAAP financial ratios, capital management measures, and supplemental 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. Certain of these measures and ratios do not have a standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures and ratios presented by other entities. As such, these non-GAAP measures and ratios should not be considered in isolation or used as a substitute for measures and ratios 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. The following are the Corporations' non-GAAP financial measures, non-GAAP ratios, capital management measures, and supplementary measures.
Non-GAAP Financial Measures
Consolidated and deconsolidated adjusted EBITDA
Consolidated adjusted EBITDA is calculated as net (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 (loss) 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. From time to time, the Corporation issues guidance on this key measure. As a result, consolidated adjusted EBITDA is presented as a relevant measure in this news release and 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:
Three months ended | Six months ended June 30, | |||||||
(in millions of Canadian dollars) | 2024 | 2023 | 2024 | 2023 | ||||
Net loss | $ | (0.3) | $ | (4.7) | $ | (10.0) | $ | (35.7) |
Deferred income tax recovery | - | (1.0) | - | (10.0) | ||||
Depreciation | 21.3 | 22.7 | 44.5 | 44.6 | ||||
Finance costs and other | 18.3 | 23.2 | 39.9 | 47.3 | ||||
Share-based compensation | - | 3.9 | 2.8 | 7.9 | ||||
(Gain) loss on sale of assets | - | (1.1) | - | 0.9 | ||||
Unrealized loss (gain) on derivative contracts | 1.5 | (5.1) | 2.9 | 29.4 | ||||
Realized gain on marketable securities | - | - | (5.0) | - | ||||
Transaction costs | - | 1.3 | 1.3 | 1.7 | ||||
Non-recurring transactions | 4.8 | 4.7 | 9.3 | 6.0 | ||||
Adjustment to share of profit from equity accounted investments | (0.3) | 0.1 | (0.6) | 0.8 | ||||
Consolidated adjusted EBITDA | $ | 45.3 | $ | 44.0 | $ | 85.1 | $ | 92.9 |
Less: Consolidated adjusted EBITDA attributable to Tidewater Renewables | (29.5) |
(8.1) | (54.8) |
(20.7) | ||||
Deconsolidated adjusted EBITDA | $ | 15.8 | $ | 35.9 | $ | 30.3 | $ | 72.2 |
Distributable cash flow and deconsolidated distributable cash flow attributable to shareholders
Distributable cash flow attributable to shareholders is a non-GAAP measure. Distributable cash flow is calculated as net cash provided by (used in) 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. Management believes distributable cash flow is a useful metric for investors when assessing the amount of cash flow generated from normal 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. 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 (used in) provided by operating activities, the nearest GAAP measure, to distributable cash flow and deconsolidated distributable cash flow:
Three months ended June 30, | Six months ended June 30, | |||||||
(in millions of Canadian dollars) | 2024 | 2023 | 2024 | 2023 | ||||
Net cash provided by (used in) operating activities | $ | 27.8 | $ | 44.2 | $ | (1.5) | $ | 81.3 |
Add (deduct): | ||||||||
Changes in non-cash operating working capital | 12.3 | (13.3) | 72.3 | (8.0) | ||||
Transaction costs | - | 1.3 | 1.3 | 1.7 | ||||
Non-recurring transactions | 4.8 | 4.7 | 9.3 | 6.0 | ||||
Interest and financing charges | (11.6) | (17.5) | (25.7) | (32.4) | ||||
Payment of lease liabilities and other, net of sublease payments | (8.8) | (11.8) | (19.2) | (23.9) | ||||
Maintenance capital | (14.1) | (41.8) | (16.3) | (55.8) | ||||
Tidewater Renewables' distributable cash flow to non-controlling interest shareholders | (6.4) | 2.4 | (10.4) | 0.8 | ||||
Distributable cash flow attributable to shareholders | $ | 4.0 | $ | (31.8) | $ | 9.8 | $ | (30.3) |
Tidewater Renewables' distributable cash flow attributed to shareholders of Tidewater | $ | (13.9) | $ | 5.4 | $ | (22.7) | $ | 1.8 |
Deconsolidated distributable cash flow attributable to shareholders | $ | (9.9) | $ | (26.4) | $ | (12.9) | $ | (28.5) |
Growth capital expenditures are generally funded from retained operating cash flow and additional debt or equity, as required.
Non-GAAP Financial Ratios
Tidewater uses non-GAAP financial ratios to present aspects of its financial performance or financial position, primarily distributable cash flow per share.
Distributable cash flow and deconsolidated distributable cash flow per share
Distributable cash flow and deconsolidated distributable cash flow are non-GAAP financial measures. 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. 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.
Three months ended June 30, | Six months ended June 30, | |||||||
(in millions of Canadian dollars except share and per share information) | 2024 | 2023 | 2024 | 2023 | ||||
Distributable cash flow attributable to shareholders | $ | 4.0 | $ | (31.8) | $ | 9.8 | $ | (30.3) |
Deconsolidated distributable cash flow attributable to shareholders | $ | (9.9) | $ | (26.4) | $ | (12.9) | $ | (28.5) |
Weighted average common shares outstanding - basic (millions) | 429.1 | 424.9 | 428.7 | 424.7 | ||||
Weighted average common shares outstanding - diluted (millions) | 429.1 | 424.9 | 428.7 | 424.7 | ||||
Distributable cash flow per share - basic | $ | 0.01 | $ | (0.07) | $ | 0.02 | $ | (0.07) |
Deconsolidated distributable cash flow per share - basic | $ | (0.02) | $ | (0.06) | $ | (0.03) | $ | (0.07) |
Distributable cash flow per share - diluted | $ | 0.01 | $ | (0.07) | $ | 0.02 | $ | (0.07) |
Deconsolidated distributable cash flow per share - diluted | $ | (0.02) | $ | (0.06) | $ | (0.03) | $ | (0.07) |
Capital Management Measures
Tidewater's methods for managing capital and liquidity are discussed in the LIQUIDITY AND CAPITAL RESOURCES section of the MD&A and within note 24 of the Financial Statements for the year ended December 31, 2023.
Consolidated and deconsolidated net debt
Consolidated net debt is defined as bank debt, term debt, and convertible debentures, less cash. Consolidated net debt is used by the Corporation to monitor its capital structure and financing requirements. It is also used as a measure of the Corporation's overall financial strength.
In addition to reviewing consolidated net debt, management reviews deconsolidated net debt to highlight Tidewater Midstream'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:
(in millions of Canadian dollars) | June 30, | June 30, | ||
Tidewater Midstream Senior Credit Facility | $ | 89.4 | $ | 521.6 |
Tidewater Renewables Senior Credit Facility | 143.4 | 140.0 | ||
Tidewater Renewables Term Debt Facility | 175.0 | 175.0 | ||
2024 Convertible debentures - principal | 100.0 | - | ||
2019 Convertible debentures - principal | - | 75.0 | ||
Cash | (1.9) | (23.1) | ||
Consolidated net debt | $ | 505.9 | $ | 888.5 |
Less: Tidewater Renewables Senior Credit Facility | (143.4) | (140.0) | ||
Less: Tidewater Renewables Term Debt Facility | (175.0) | (175.0) | ||
Add: Tidewater Renewables cash | 1.9 | 21.9 | ||
Deconsolidated net debt | $ | 189.4 | $ | 595.4 |
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.
Deconsolidated "net (loss) income attributable to shareholders - per share" is calculated by dividing deconsolidated "net income or loss attributable to shareholders" by the basic weighted average number of Tidewater Midstream common shares outstanding for the period.
Deconsolidated "Total capital expenditures" is comprised of consolidated capital expenditures, as disclosed in Tidewater's statement of cash flows, less the capital expenditures of Tidewater Renewables.
OPERATIONAL DEFINITIONS
"bbl/d" means barrels per day; "MMcf/d" means million cubic feet per day.
"BC LCFS emission credits" means the credits awarded to BC Part 3 Fuel Suppliers by either (i) supplying a fuel with a carbon intensity ("CI") below the prescribed CI limit, or (ii) taking actions that would have a reasonable possibility of reducing greenhouse gas emissions through the use of Part 3 fuels sooner than would occur without the agreed-upon action, which credits may be transferred upon validation.
"BC Part 3 Fuel Suppliers" means a "part 3 fuel supplier" under, collectively British Columbia's Greenhouse Gas Reduction (Renewable & Low Carbon Fuel Requirements Act) and Renewable & Low Carbon Fuel Requirements Regulation.
"CFR emission credits" means credits generated under the Canadian Clean Fuel Regulation.
"Crack spread" refers to the general price differential between crude oil and the petroleum products refined from it.
"Refinery yield" (expressed as a percentage) represents the percentage of finished product produced from inputs of crude oil and renewable feedstock as well as intermediates. Refinery yields are an important measure of refinery performance indicating the outputs that running a particular feedstock and intermediates through a refinery configuration will produce.
"Throughput" with respect to a natural gas plant, means inlet volumes processed (including any off-load or reprocessed volumes); with respect to a pipeline, the estimated natural gas or liquid volume transported therein; and with respect to NGL processing facilities, means the volume of inlet NGLs processed.
"US" meaning the United States of America, its territories and possessions, any state of the United States and the District of Columbia
Advisory Regarding Forward-Looking Statements
Certain statements contained in this news 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 news release should not be unduly relied upon.
In particular, this news release contains forward-looking statements pertaining to but not limited to the following:
- the terms of the Proposed Transaction, including the consideration thereunder;
- financing expectations for the Proposed Transaction;
- the benefits of the Proposed Transaction, including the use of proceeds therefrom by Tidewater Renewables;
- expectations regarding the closing of the Proposed Transaction and the timing thereof;
- expectations regarding the focus of Tidewater Renewables continued business;
- marketing efforts regarding the Corporation's products;
- Tidewater's view of the BC LCFS emission credit market, including the effect of tightening compliance obligations and cold weather diesel specifications on the market;
- discussions with the Government of British Columbia regarding the BC LCFS emission credit market;
- the PGR turnaround cycle and the next scheduled outage;
- expectations regarding natural gas prices and producer activity in the areas that the Corporation operates;
- expectations regarding the resumption of gas processing activities at the Ram River Gas Plant;
- Tidewater's consolidated adjusted EBITDA guidance for 2024;
- the pursuit of various savings, optimization and profitability enhancement initiatives;
- estimated throughput and utilization;
- Tidewater's business strategy;
- the ongoing development of the SAF project;
- Tidewater's consolidated maintenance capital guidance for 2024;
- operations and performance at the HDRD complex; and
- Tidewater's ongoing efforts at the Ram River natural gas processing facility to work with local third parties to increase throughput volumes, enhance overall regional processing efficiencies and maximize contracted revenues with the plant's sulphur handling infrastructure.
Although the forward-looking statements contained in this news 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 news 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;
- future commodity prices, including natural gas, crude oil, NGL and renewable energy prices;
- the market for BC LCFS emission credits, including that such market will improve and the timing thereof;
- the successful negotiation of definitive agreements regarding the Proposed Transaction;
- the closing of the Proposed Transaction, the timing thereof and the ability of the Parties to satisfy all conditions related thereto;
- the expectation that the liquidity issues of Tidewater Renewables will be address by the Proposed Transaction;
- 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 availability of equipment and personnel required for Tidewater to execute its business plan;
- the amount of future liabilities relating to lawsuits and environmental incidents and the availability of coverage under the Corporation's insurance policies;
- volume demands from the PGR are consistent with forecasts;
- successful negotiation and execution of agreements with counterparties;
- oil and gas industry exploration and development activity 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;
- the amount of operating costs to be incurred;
- that there are no unforeseen costs relating to the facilities, 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;
- 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, armed hostilities, acts of war, terrorism, cyberattacks, diplomatic developments 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;
- the conflict in Ukraine and the corresponding impact on supply chains and the global economy;
- 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;
- changes in environmental and other laws and regulations or the interpretations of such laws or ???regulations?;
- ?cost of compliance with applicable regulatory regimes, including, but not limited to, environmental laws and regulations, including greenhouse gas emissions;
- Indigenous 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 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;
- losses of key customers;
- 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 (such severe weather or catastrophic events including, but not limited to, fires, floods, lightning, earthquakes, extreme cold weather, storms or explosions);
- reputational risks;
- 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 news 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 financial outlook information contained in this news release about consolidated adjusted EBITDA and maintenance capital activities is based on assumptions about future events, including economic conditions and proposed courses of action, based on management's assessment of the relevant information currently available. Additionally, the financial outlook information contained in this news release is subject to the risk factors described above in respect of forward-looking information generally as well as any other specific assumptions and risk factors in relation to such financial outlook noted in this news release. Accordingly, readers are cautioned that the financial outlook information contained in this news release should not be used for purposes other than for which it is disclosed herein. The financial outlook information contained in this news release was approved by management as of the date such outlook financial outlook information was announced and was provided for the purpose of providing further information about Tidewater's current expectations and plans for the future.
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 news 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 news 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.sedarplus.ca.
SOURCE Tidewater Midstream and Infrastructure Ltd.
For further information please contact: Michael Gracher, Manager, Investor Relations, Tidewater Midstream & Infrastructure Ltd, www.tidewatermidstream.com, [email protected], (403) 200 - 9142
