Canada NewsWire
CALGARY, AB, Aug. 13, 2020
CALGARY, AB, Aug. 13, 2020 /CNW/ - Tidewater Midstream and Infrastructure Ltd. ("Tidewater" or the "Corporation") (TSX: TWM) is pleased to announce that it has filed its condensed interim consolidated financial statements and Management's Discussion and Analysis ("MD&A") for the three and six-month period ended June 30, 2020.
SECOND-QUARTER 2020 FINANCIAL PERFORMANCE
Highlights
COVID-19 UPDATE
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 six-month period ended June 30, 2020 which are available at www.sedar.com and on our website at www.tidewatermidstream.com.
Financial Overview
Consolidated Financial Highlights
Three months ended | Six months ended | |||||||||||
(in thousands of Canadian dollars except per share information) | 2020 | 2019 | 2020 | 2019 | ||||||||
Revenue | $ | 178,568 | $ | 155,311 | $ | 431,032 | $ | 278,976 | ||||
Net income (loss) attributable to shareholders | $ | (311) | $ | (4,086) | $ | (39,942) | $ | (11,221) | ||||
Basic and diluted net income (loss) attributable to shareholders per share | $ | (0.00) | $ | (0.01) | $ | (0.12) | $ | (0.03) | ||||
Adjusted EBITDA (1) | $ | 41,873 | $ | 21,786 | $ | 83,379 | $ | 44,190 | ||||
Adjusted EBITDA per common share - basic (1) | $ | 0.12 | $ | 0.07 | $ | 0.25 | $ | 0.13 | ||||
Net cash provided by (used in) operating activities | $ | 58,985 | $ | 29,015 | $ | 86,975 | $ | 25,705 | ||||
Distributable cash flow (2) | $ | 10,559 | $ | 11,295 | $ | 23,048 | $ | 27,605 | ||||
Distributable cash flow per common share – basic (2) | $ | 0.03 | $ | 0.03 | $ | 0.07 | $ | 0.08 | ||||
Dividends declared | $ | 3,384 | $ | 3,311 | $ | 6,761 | $ | 6,620 | ||||
Dividends declared per common share | $ | 0.01 | $ | 0.01 | $ | 0.02 | $ | 0.02 | ||||
Total common shares outstanding (000s) | 338,413 | 331,054 | 338,413 | 331,054 | ||||||||
Payout ratio (3) | 32% | 29% | 29% | 24% | ||||||||
Total assets | $ | 2,023,884 | $ | 1,577,732 | $ | 2,023,884 | $ | 1,577,732 | ||||
Net debt (4) | $ | 862,493 | $ | 437,457 | $ | 862,493 | $ | 437,457 | ||||
Notes: | |
1 | Adjusted EBITDA is calculated as net income before interest, taxes, depreciation, share-based compensation, unrealized gains/losses, non-cash items, transaction costs, items that are considered non-recurring in nature and the Corporation's proportionate share of EBITDA in their equity investments. Adjusted EBITDA per common share is calculated as Adjusted EBITDA divided by the weighted average number of common shares outstanding for the three and six-month period June 30, 2020. Adjusted EBITDA and Adjusted EBITDA per common share are not standard measures under GAAP. See "Non-GAAP Measures" in the Corporation's MD&A for a reconciliation of Adjusted EBITDA and Adjusted EBITDA per common share to their most closely related GAAP measures. |
2 | Distributable cash flow is calculated as net cash used in operating activities before changes in non-cash working capital and after any expenditures that use cash from operations. Distributable cash flow per common share is calculated as distributable cash flow over the weighted average number of common shares outstanding for the three and six-month period ended June 30, 2020. Distributable cash flow and distributable cash flow per common share are not standard measures under GAAP. See "Non-GAAP Measures" in the Corporation's MD&A for a reconciliation of distributable cash flow and distributable cash flow per common share to their most closely related GAAP measures. |
3 | Payout Ratio is calculated by expressing dividends declared to shareholders for the period as a percentage of distributable cash flow attributable to shareholders. This measure, in combination with other measures, is used by the investment community to assess the sustainability of the current dividends. Payout Ratio is not a standard measure under GAAP. See "Non-GAAP Financial Measures" in the Corporation's MD&A for a reconciliation of Payout Ratio to its most closely related GAAP measure. |
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 "Non-GAAP Measures" in the Corporation's MD&A for a reconciliation of Net Debt to its most closely related GAAP measure. |
OUTLOOK AND CORPORATE UPDATE
Tidewater is well positioned to weather the current economic environment and remains focused on cash flow generation, increasing liquidity and reducing leverage. The Corporation does not plan to spend significant capital in 2020 with its large 2019 capital program now complete. Tidewater's forecasted payout ratio is expected to range from 20% to 30% with the remainder of Distributable Cash Flow used to reduce leverage. The proceeds from the Pioneer Transaction will significantly reduce leverage with net proceeds of approximately $138 million. A large portion of Tidewater's cashflow is generated from take-or-pay contracts and long-term agreements with over 50% generated from investment grade counterparties. Tidewater expects net debt to adjusted EBITDA of approximately 3.0x – 3.5x subsequent to the completion of the Pioneer Transaction.
Prince George Refinery
PGR is a 12,000 bbl/day light oil refinery that predominantly produces low sulphur diesel and gasoline, in addition to other products, to supply the greater Prince George region. PGR 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 refinery's location within the region makes it a critical piece of infrastructure with a significant logistical advantage to address demand in northern British Columbia.
During the second quarter of 2020, PGR achieved over 85% utilization. Utilization declined during the second quarter as compared to the first quarter by approximately 5% due to the planned two-week maintenance program at the refinery during April 2020. Tidewater has debottlenecked various processing units at PGR resulting in PGR seeing record throughput of over 12,000 bbls/day and combined gasoline and diesel production of over 10,500 bbls/day.
Tidewater's refined product yields at PGR for the second quarter of 2020 were as follows:
Throughput | 10,500 bbl/day |
Gasoline yield | 42% |
Diesel yield | 43% |
Other (1) | 15% |
(1) Other refers to heavy fuel oil (HFO), LPG and feedstock consumed to fuel the refinery. |
Tidewater's refining margins are largely driven by commodity prices, particularly the cost of crude feedstock and other raw materials, along with market prices for refined products. During the first half of the second quarter, as a result of the developing COVID-19 pandemic, refined product demand decreased and realized margins on refined product sales contracted due to declining commodity prices and a higher weighted average cost of inventory carried over from the first quarter of 2020. However, this is partially offset by a portion of the realized gain on derivative contracts.
As a result of reduced social quarantine restrictions by provincial and federal governments during the latter half of the second quarter, refined product demand has steadily increased. Tidewater achieved improved margins due to a recovery in refined product pricing and a lower weighted average cost of inventory from less expensive crude feedstock purchased during the first half of the quarter, while throughput remained consistent.
Tidewater is encouraged by the resilience of the PGR asset in an unprecedented time with crack spreads holding steady at approximately $50/BBL. This demonstrates the refinery's long-term value in servicing the markets where in which it operates.
The Corporation also continues to evaluate opportunities to participate in future low-carbon fuel standard ("LCFS") agreements at the PGR.
Tidewater is also pursuing numerous low capital and high rate of return debottlenecks and optimization opportunities within its downstream business unit.
Pipestone Gas Plant
The Pipestone Gas Plant is designed to process approximately 100 MMcf/day of sour natural gas. This asset includes two acid gas injection wells, a saltwater disposal well, and sales gas pipelines directly connected to the Pipestone Gas Storage Facility, as well as Alliance and TC Energy pipelines. The facility is also pipeline connected to Pembina for C2+ and C5+ liquid streams.
Tidewater processed an average volume of 72 MMcf/day in the second quarter of 2020, an increase of 10% over the first quarter. Liquids production also increased by 65% with the commissioning of the Pembina C2+ pipeline and the deep cut processing unit. Facility uptime and availability for the quarter averaged 96% and 92% respectively. The Pipestone Gas Plant is fully contracted with over 80% committed on take or pay arrangements.
Pioneer Pipeline
On June 18, 2020, Tidewater and TransAlta entered into a definitive Purchase and Sale Agreement to sell the majority of the assets of Pioneer Pipeline LP to NGTL for gross proceeds of $255 million. Tidewater and TransAlta have also entered into a separate letter of intent whereby TransAlta will pay Tidewater $10.5 million for certain ancillary assets that are not part of the NGTL transaction, resulting in approximately $138 million in total cash consideration net to Tidewater. Proceeds from the transaction will be used to accelerate Tidewater's commitment to achieve approximately 3.0x – 3.5x net debt to Adjusted EBITDA. Tidewater remains committed to closing the transaction by year-end 2020, with potential for closing to occur in 2021 subject to timing of regulatory approvals.
Tidewater and NGTL have agreed to terms and conditions to qualify Tidewater to receive interruptible storage services ("IT-S Service") at Tidewater's Brazeau River Complex storage facilities ("BRC Storage Facilities"). With the IT-S Service, Tidewater will be able to attract new, creditworthy storage customers at the BRC Storage Facilities, creating expansion opportunities to increase storage capacities at the BRC Storage Facilities.
Subject to regulatory approvals, Tidewater and NGTL have also agreed to terms and conditions to qualify Tidewater for NGTL services with respect to the natural gas currently transported on the Pioneer Pipeline and incremental natural gas from increased access to the NGTL system, which will lead to higher fractionation and processing utilization levels at the BRC. The terms and conditions of this arrangement would be for a similar term as TransAlta's current 15-year take-or-pay agreement on the Pioneer Pipeline, and it is expected that the EBITDA generated from the new service will partially offset the reduction in EBITDA from the Pioneer Pipeline sale.
Through the first twelve months of operation, the Pioneer Pipeline has run steadily with minimal interruptions and Tidewater has met its take or pay obligations. The Pioneer Pipeline has performed to expectation, delivering forecasted EBITDA, largely backed by TransAlta's take-or-pay commitment.
Brazeau River Complex and Fractionation Facility
Throughput at the BRC for the second quarter of 2020 was in-line with the previous quarter. 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 performed well through the second quarter of 2020, despite a challenging pricing environment, and has maintained near capacity throughput since the start of the NGL contract year with several investment grade counterparties. The marketing business found new ways to enhance producer netbacks and create operational flexibility by utilizing Tidewater facilities and maintaining disciplined risk management processes to mitigate frac spread and commodity exposure.
The Brazeau River Complex remains a core 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.
Natural Gas Storage
Tidewater operates natural gas storage reservoirs at three different facilities: Dimsdale Paddy A (Pipestone Gas Storage Facility), Brazeau Nisku F, and Brazeau Nisku A. The Pipestone Gas Storage Facility and Brazeau Nisku A are owned through joint ventures with a private Canadian entity and are accounted for as equity investments.
The second quarter of 2020 saw AECO natural gas price volatility continue to experience normal levels, with spot prices generally rangebound between $1.70 and $2.00 aside from a short burst of strength in the first week of May.
The Pipestone Gas Storage Facility performed well in the quarter as it entered its first injection season following the 2019 expansion. The facility successfully met customer park-and-loan commitments while pressuring up with a rapid inventory build in anticipation of next winter's expanded withdrawal obligations. The Facility complex demonstrated its inherent optionality in the period by delivering gas to both Alliance Pipeline at the Saskatoon Mountain meter station and to TC Energy's NGTL at Pipestone Creek.
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 represents 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.
Similarly, both Brazeau Nisku A and Brazeau Nisku F storage pools have also been building inventories through the first part of the injection season while continuing to meet the Pioneer Pipeline delivery obligations as well as realizing liquids value benefit through cycling.
CAPITAL PROGRAM
During 2019, Tidewater commissioned 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 Corporation's focus in 2020 is on small-scale optimization and commissioning projects.
Tidewater's focus over the next 12 months is to employ the related cashflow from its 2019 large completed capital projects and PGR, as well as proceeds from the Pioneer Transaction, towards deleveraging with a target net debt to Adjusted EBITDA ratio of approximately 3.0x – 3.5x by the end of 2020. To date, Tidewater has not committed to a significant capital program in 2020, however continues to evaluate smaller capital projects with the potential to generate returns in excess of 50%.
APPOINTMENT OF NEW DIRECTOR
The Corporation is pleased to announce that Ms. Gail Yester has been appointed to the Board of Directors of the Corporation. Ms. Yester will add significant legal, land, acquisition and divestiture experience to the Board. The Board and Management look forward to working with Ms. Yester.
SECOND QUARTER 2020 EARNINGS CALL
In conjunction with the earnings release, investors will have the opportunity to listen to Tidewater senior management review its second quarter 2020 results via conference call on Thursday, August 13, 2020 at 11:00 am MDT (1:00 pm EDT).
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://produceredition.webcasts.com/starthere.jsp?ei=1349898&tp_key=ff20a30bf5 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, natural gas liquids, crude oil and refined product 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, including gas plants, pipelines, railcars, trucks, export terminals, storage and downstream facilities.
Additional information relating to Tidewater is available on SEDAR at www.sedar.com and at www.tidewatermidstream.com.
Advisory Regarding Forward-Looking Statements
FORWARD-LOOKING INFORMATION
Certain statements contained in this news release constitute forward-looking statements and forward-looking information (collectively, "forward-looking statements"). Such forward-looking statements relate to possible events, conditions or financial performance of the Corporation based on future economic conditions and courses of action. All statements other than statements of historical fact are forward-looking statements. The use of any words or phrases such as "seek", "anticipate", "plan", "continue", "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 are intended to identify forward-looking statements. 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 there is a reasonable basis for the expectations reflected in the forward-looking statements, however no assurance can be given that these expectations will prove to be correct and the forward-looking statements included in this news release should not be unduly relied upon by investors.
Specifically, this press release contains forward-looking statements relating to but not limited to:
Such forward-looking statements of information are based on a number of assumptions which may prove to be incorrect. In addition to other assumptions identified in this document, assumptions have been made regarding, among other things:
Actual results achieved will vary from the information provided herein as a result of numerous known and unknown risks and uncertainties and other factors including but not limited to:
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.
The above summary of assumptions and risks related to forward-looking statements in this press release is intended to provide shareholders and potential investors with a more complete perspective on Tidewater's current and future operations and such information may not be appropriate for other purposes. There is no representation by Tidewater that actual results achieved will be the same in whole or in part as those referenced in the forward-looking statements and 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, except as may be required by applicable securities law.
Actual results achieved will vary from the information provided herein as a result of numerous known and unknown risks and uncertainties and other factors related to COVID-19. These known and unknown risks and uncertainties include, but are not limited to: risks and impacts related to widespread epidemic or pandemic outbreaks, including COVID-19; demand for refined products related thereto; the possibility that governmental policies or laws may change or governmental approvals may be delayed or withheld; 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 letter of intent or similar agreements have been executed and announced by Tidewater; failure to close transactions as contemplated and in accordance with negotiated terms; non-performance or default by counterparties to agreements which Tidewater has entered in respect of its business; construction delays, labour and material shortages; technology and cyber security risks; and certain other risks detailed from time to time in Tidewater's public disclosure documents including, among other things, those detailed under the heading "Risk Factors" in Tidewater's management's discussion and analysis for the three and six-months ended June 30, 2020 and annual information form for the year ended December 31, 2019.
Any financial outlook or future-oriented financial information, as defined by applicable securities legislation, has been approved by management of Tidewater as of August 12, 2020. A financial outlook or future-oriented financial information is provided for the purpose of providing information about management's current expectations and goals relating to the future of Tidewater. Readers are cautioned that reliance on such information may not be appropriate for other purposes. The purpose of the future-oriented financial information contained herein including but not limited to future periods of net income and Adjusted EBITDA is to assist investors, shareholders, and others in understanding certain financial metrics relating to expected future financial results for the purpose of evaluating the performance of Tidewater's business for future periods. This information may not be appropriate for other purposes. The results and conclusions of these assessments, along with the known and unknown risks, uncertainties and other factors referred to above, could impact Tidewater's estimates and the information related to such future periods contained herein and any such impact could be material.
Non-GAAP Measures
This news release refers to "Adjusted EBITDA" which do not have any standardized meaning prescribed by generally accepted accounting principles in Canada ("GAAP"). Adjusted EBITDA is calculated as income or loss before interest, taxes, depreciation, share-based compensation, unrealized gains/losses, non-cash items, transaction costs, items that are considered non-recurring in nature and the Corporation's proportionate share of EBITDA in their equity investments.
Tidewater Management believes that Adjusted EBITDA provide useful information to investors as they provide an indication of results generated from the Corporation's operating activities prior to financing, taxation and non-recurring/non-cash impairment charges occurring outside the normal course of business. Management utilizes Adjusted EBITDA to set objectives and as a key performance indicator of the Corporation's success. In addition to its use by Management, Tidewater also believes Adjusted EBITDA is a measure widely used by security analysts, investors and others to evaluate the financial performance of the Corporation and other companies in the midstream industry. Investors should be cautioned that Adjusted EBITDA should not be construed as alternatives to earnings, cash flow from 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.
"Distributable cash flow" is a non-GAAP financial measure and is calculated as net cash used in operating activities before changes in non-cash working capital plus 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. 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's ongoing operations.
Management of the Corporation believes distributable cash flow is a useful metric for investors when assessing the amount of cash flow generated from normal operations and to evaluate the adequacy of internally generated cash flow to fund dividends.
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's most recent MD&A which is available on SEDAR.
SOURCE Tidewater Midstream and Infrastructure Ltd.
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