Tidewater Midstream and Infrastructure Ltd.

Good afternoon, ladies and gentlemen, and welcome to the Tidewater Midstream and Infrastructure Limited Q1 2024 Financial Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, you will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, May 9, 2024. I would now like to turn the conference over to Mr. Michael Gratcher, Manager of Investor Relations. Please go ahead, sir.

Thank you, Operator, and welcome everyone to Tidewater Midstream's first quarter 2024 results conference call. I'm Michael Gratcher, Manager of Investor Relations, and joining me today are Jeremy Baines, CEO, and Aaron Ames, Tidewater Midstream's Interim CFO. Also with us and available during the question and answer session is Sean Heaney, EVP Planning and Strategy. Before we begin, please note that matters discussed on this call include forward-looking statements under applicable securities laws with respect to Tidewater Midstream and Infrastructure LTD, including but not limited to statements regarding investments and acquisitions by the company, commercial arrangements of the company, the business strategies and operational activities of the company, the markets and industries in which the company operates, cost and expense management, the company's leverage and plans for debt and leverage reduction, refinancing of the company's indebtedness, the value of the company's assets, and the future growth, objectives, targets, and financial and operating performance of the company and its businesses. Such statements are based on factors and assumptions that management believes are reasonable at the time they were made and information currently available. Forward-looking statements we may express or imply today are subject to risk and uncertainties, which can cause actual results to differ from expectations. Further, some of the information provided refers to non-GAAP measures. To learn more about these forward-looking statements and non-GAAP measures, please see Tidewater Midstream's financial reports, which are available at www.tidewatermidstream.com and on CDAR+. And with that, I will now pass the call over to Jeremy to go over the highlights of the quarter.

Thanks, Michael, and thanks to everyone for joining us today. I want to say we are proud of another quarter where we operated safely. I'm proud of the team and our focus on safe and reliable operations. This is a key priority for the company. On the renewables front, the HDRD complex is operating very well at design capacity of 3,000 barrels per day. As I had mentioned at year end, Our team worked through the normal ramp-up challenges, and our facility has been performing very well. We expected to perform at design capacity going forward, and accordingly, we expect HDRD to exceed a full-year utilization rate of 85%. During Q1, we performed on average at 71% of design capacity and expect to be approximately 95% of design capacity for the rest of this year. Overall, the quarter started with PG crack spreads around $80, which strengthened in February and March to around $90, ending at an overall average of 88 for the quarter, a bit below the same period last year, which averaged around $90. We are currently seeing typical moderation in crack prices as we progress through Q2 before we move into the high-demand summer driving season. Last year's Q2 results were impacted by the scheduled PGR turnaround, Well, this year we expect to be operating at capacity and improving on year-over-year volumes. For the first time, we have the opportunity to begin marketing our very own renewable diesel product in our own backyard in British Columbia. Our marketing initiatives are progressing well. Due to our renewable diesel produced at HDRD, we have a competitive advantage in our ability to provide customers with a blended renewable diesel product, and we are seeing the benefits with a new logistics customer. Hot off the press, Midstream just completed the scheduled turnaround at BRC, and as I said already, I want to congratulate the team for a successful execution of another turnaround, which was completed safely, on time, and on budget, with no lost time incidents. As I stated before, natural gas will play a critical role in the transition towards cleaner, more sustainable energy generation. Presently, gas prices are at historically low levels, which we view as unsustainable in the long term. With LNG Canada expected to come online in mid-2025, we expect prices will begin to trend upwards throughout 2025, which will enhance the attractiveness of investments and drive demand for natural gas processing at our facilities. Operationally, we made significant progress in streamlining our cost structure with a continued focus on safety, maximizing asset performance, and driving free cash flow generation. We are taking a focused approach to the investments we make in our people and capital with an eye on delivering long-term free cash flow, maximizing return on net assets while minimizing risk and deleveraging. We have already implemented operational changes totaling $6 million on a run rate basis and similarly SG&A reductions of a further $5 million in 2024 and $7 million on a run rate basis go forward. On the refinancing fronts for both the senior financing at renewables and the convertibles at midstream, we are down the path on both of these and expect to provide an update on our refinancing soon. I'd like to turn our expectations for the year. Assuming PG crack spreads average in the $80 to $90 per barrel range and BCLCS credits are priced between $450 and $500 per credit, Tidewater expects 2024 consolidated adjusted EBITDA to be in the range of $150 to $170 million. Tidewater's full year consolidated maintenance capital program is expected to be approximately $35 to $40 million. With the BRC turnaround completed safely on time and on budget, our maintenance capital program was weighted to the first half of the year and operations at BRC have ramped back up to normal run rate operations. To round it out, We also have made significant progress on the front end engineering and design of the proposed 6,500 barrel a day sustainable aviation fuel project. This includes integrating lessons learned from the HDRD complex into the SAFS project's design basis. During the first quarter of 2024, the corporation received emissions credits for achieving its first milestone under an executed incentive agreement. These credits were sold under a previously announced purchase agreement. The corporation continues to progress commercial arrangements and is evaluating potential offtake agreements for the SAF project. The SAF project remains subject to a final investment decision, which is expected in 2025. Looking forward, we are excited about the opportunities we see in front of us. Our PGR and HDRD facilities are performing well and expected to continue to run at design capacity for the remainder of 2024. With the BRC turnaround completed, safely on time, on budget, and back to run rate operations, our midstream business is well positioned to capitalize on the key role natural gas will play in providing clean and reliable energy. I will now turn the call over to Aaron to go through the financial results.

Thank you, Jeremy. During Q1 2024, consolidated adjusted EBITDA was $39.8 million, of which $25.3 million was contributed by Tidewater Renewables. During the same quarter last year, consolidated adjusted EBITDA was $48.9 million, of which $12.6 million was from Tidewater Renewables. The quarter-over-quarter decrease was primarily driven by the sale of Pipestone and Dimmesdale. On January 9, 2024, Tidewater monetized its AltaGas common shares for net proceeds of $341.6 million. These proceeds were used to further reduce credit facility debt and working capital. At quarter end March 31, 2024, Tidewater Midstream's senior credit facility was elevated by approximately 26 million due to timing of accounts receivable settlements due to the Easter long weekend. As of May 3rd, the balance drawn on the facility was approximately 85 million.

I'll now ask the operator to open the call up for questions.

Thank you, sir. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number one on your touchtone phone. You will hear a three-tone prompt acknowledging your request. Should you wish to decline from the polling process, please press star followed by the number two. If you're using a speakerphone, please lift your hands up before pressing any keys. Ladies and gentlemen, should you have a question, please press star followed by the number one on your touchstone phone. We have our first question coming from the line of Rob Hope from Scotiabank. Please go ahead.

Morning everyone. Maybe first on the 2024 guidance, it looks like tidal water renewables is largely proceeding as expected. So can you talk about the other items that could be a little bit of a headwind for 2024 guidance, specifically what you're thinking about the midstream business as well as the refinery?

Yeah, thanks for the question, Rob. Obviously, we're very happy with how the HDRD facility, basically since the last week of February, has performed very well. Now that we've gotten the commissioning completed and into normal operations, things are progressing well there. On the guidance around midstream, obviously, with the sale of Pipestone, that was a significant asset. and things have, you know, changed on that front. We, you know, and we have a turnaround that's taken place in Q2 at BRC. So we see the midstream business, you know, obviously in a turnaround year, it won't be as good as other years, but continue to perform pretty well. There are a few things we're working on around utilization at the facilities, particularly some opportunities for additional straddle gas at BRC. as well. We are working. We did have a couple of items that were catch-ups from prior years in the results of Q1 that were quite small, but otherwise, we continue to track well there. And on the PGR, I think you asked about PGR as well. On that front, you know, things are running well. We're getting good volumes out after the turnaround last year with Fresh Catalyst. And really subject to where crack spreads ultimately end. Things continue to progress well. We're operating well and cool from there.

Thanks for that. Maybe just in terms of the converts and the refinancing in front of you, as you take a look at where your capital is right now and kind of where you want it to be at the end of the year, is there a path forward on the refinancing that looks more attractive or less attractive at this point?

So we're down the path, as we mentioned, on various alternatives, and we're progressing very nicely on those alternatives, and we will update the market on those shortly.

All right. Wait and see. All right. Thank you.

Thank you. Ladies and gentlemen, just a reminder, should you have a question, please press star, followed by the number one on your touchstone phone. We have our next question coming from the line of Robert Kwan from RBC Capital Markets. Go ahead, please.

Thank you. Good morning. Just on the BRC downtime, are you able to quantify what the impact is to EBITDA between lost margin on the downtime as well as any expense turnaround costs?

Yeah, so we've given guidance on the CapEx costs historically. We're somewhere coming in around, I think, well, I don't know if we've broken it out, but about $50 million. So it's a big part of our capital program. Downtime, we've been down for sort of call it two and a half weeks, almost three weeks. So, you know, take that almost one twelfth of a year's production. So that obviously has an impact. that's really kind of the the view uh we can provide and there was nothing in terms of any expense turnaround costs no we we capitalize our uh all of our costs during uh turnaround i would say and would direct you towards the disclosure um we did pare back the turnaround from what was originally planned so there was significant um dollars that were saved, and we also have undertaken some activities at the facility that are going to enhance our profitability go forward. We gave guidance on that, Aaron, about $6 million a year of improved run rate performance with the work we've done.

Got it. If I can just make sure I'm understanding what's in and out of guidance here. So the 150 to 170 and just off the renewables call, I know I'm probably putting a little bit of words in your mouth on the range, but I think we talked about it probably being annualizing to 100. Maybe it's more of the ramp up. So like one to 120, that kind of implies $50 million on a deconsolidated basis, plus or minus for midstream Is the roughly $10 million of combined SG&A and then the BRC savings in that, call it roughly $50 million deconsolidated, i.e. would have been $40 if you didn't do this stuff?

I mean, there is part years of those savings in there. Obviously, we're not going to get a full year of the activities we've undertaken largely in Q2, as well as there are some one-time costs associated with capturing those savings. So, But that has been included in, yes.

Yeah. Sorry, I missed your comment. Sorry. No, no. I looked like you were going to. You can go first. Yeah. So, yeah. So, it's like 60 to 70 on the midstream side, somewhere in that range.

Okay. Okay. And then just the last question, just as you think about your corporate structure, is there anything that's being evaluated in terms of the ownership position and renewables, where that is, where you want it to be, or just at some point, does it make sense to combine the entities?

Yeah, I mean, look, we're always looking to optimize costs and we do have a services agreement between the two companies and some of the savings we have exercised on are streamlining those things. As far as our ownership interest and those types of questions, really, we can't comment on that. That's really up to the two boards of directors and the shareholders of renewables, if anything were to happen on that front.

Okay, thank you.

Thank you. Our next question comes from the line of Robert Cattelier from CIBC Capital Markets. Go ahead, please.

Yeah, and just curious a little bit here on what's happening at BRC. What's causing composition to change there? Is that facility being upstreamed?

So where are you referencing composition changing? Sorry, Rob.

I thought I read that in the MD&A.

No, I don't think that's what we put in the MD&A. OK. Okay, sorry. Okay, I know what it is. It's trucking volumes and what's been coming into the facility. So there's some optimization we're doing around those. That would be what you're referring to. But overall, the facility continues to, you know, as it's ramping up here, post turnaround, we'll continue to operate as it has. We are working on There's some straddle volumes that we're working on getting into the facility that we haven't captured in the first quarter. So, you know, obviously that will help with liquids that we can recover and process and make money on, as well as what we do bring in through the track rack.

Right.

And then... And I guess... The only other point I would also make is on a go-forward basis, there are certain assets which we talked about at year-end that were idled just because of timing and pricing for natural gas. So as those things come back on, big opportunities in the future. But right now, they're in idle state given the low price of natural gas.

Ray, I was going to ask about that next, particularly the Asheson plant. What's the situation there in the view towards getting that into commercial operation again? And if there isn't visibility to that, do you foresee any significant decommissioning expenditures required in the near term?

Yeah, so we're in discussions around access and facility and can we get economic and cash flowing to operate. Overall, we're working on solutions to optimize that site, but net decommissioning related to any of that will not be an issue.

Okay, thank you.

Thank you.

And there seems to be no further questions at this time. I'd now like to turn the call back over to Mr. Grasher for final closing comments.

Thanks everyone for joining the call. The team is available to address any outstanding items with our contact information at the bottom of this morning's press release.

Thank you, sir. Ladies and gentlemen, this concludes your conference call for today.

We thank you for participating and ask that you please disconnect your lines. Have a lovely day.