Tidewater Midstream & Infrastructure Ltd. Investor Presentation

Transcription

1 TWM Brazeau River Complex October 2017 Tidewater Midstream & Infrastructure Ltd. Investor Presentation March 2019 TSX: TWM

2 Disclaimer Forward Looking Information In the interests of providing Tidewater Midstream and Infrastructure Ltd. ( Tidewater or the Corporation ) shareholders and potential investors with information regarding Tidewater, including management s assessment of future plans and operations relating to the Corporation, this document contains certain statements and information that are forward-looking statements or information within the meaning of applicable securities legislation, and which are collectively referred to herein as forward-looking statements. The use of any of the words "anticipate", "continue", "estimate", "expect", "may", "will", "project", "should", "believe", "plan", "intend" and similar expressions are intended to identify forward-looking statements. Forward-looking statements are often, but not always, identified by such words. Forward-looking statements in this document include, but are not limited to statements and tables (collectively statements ) with respect to: potential egress and demand options including for petrochemical, technology, industrial and power use; infrastructure plans with respect to the Pipestone Montney Plant Complex including with respect to natural gas egress options; planned commissioning of Tidewater s Pipestone Gas Plant and timing thereof as well as projections with respect to contracted capacity; plans for future gas processing and liquids handling expansions at the Pipestone Gas Plant; planned commissioning of the Pioneer Pipeline, timing thereof and projections related to economic benefit; plans with respect to natural gas storage infrastructure and benefits to be derived therefrom; projections to increase long term contracts and diversify to customers with strong balance sheets; plans to connect Tidewater s Montney assets to its Edmonton infrastructure/egress hub; future commitments regarding gas storage; projections regarding the East Duvernay play including industry participation and results therefrom; benefits generated from an integrated processing and infrastructure network; current and future delivery of crude oil by rail and anticipated net income and Adjusted EBITDA therefrom; the increasing relevance of Tidewater s Deep Basin network, driving utilization and net income/adjusted EBITDA growth upward; forecasts regarding 2019 Net Income and Adjusted EBITDA; anticipated margin improvements for Tidewater s Edmonton assets resulted from the reduction of certain fees, costs and tariffs; Tidewater s plans to build out its Edmonton Energy Hub over the next two to three years and the potential to add propylene, polypropylene and iso-octane production; projections regarding future development of certain resource plays including Duvernay; subsequent acquisitions and strategies for acquisitions, capital projects and expenditures; strategic initiatives; anticipated producer activity and industry trends; and anticipated performance. Readers are cautioned not to place undue reliance on forward-looking statements, as there can be no assurance that the plans, intentions or expectations upon which they are based will occur. By their nature, forward-looking statements involve numerous assumptions, as well as known and unknown risks and uncertainties, both general and specific, that contribute to the possibility that the predictions, forecasts, projections and other forward-looking statements will not occur and which may cause Tidewater s actual performance and financial results in future periods to differ materially from any estimates or projections of future performance or results expressed or implied by the forward-looking statements. These assumptions, risks and uncertainties include, among other things: receipt of third party, regulatory and governmental approvals and consents; failure to consummate definitive agreements related to contemplated projects; future operating results; the availability of capital to fund future capital requirements relating to existing assets and projects; the amount of future liabilities relating to lawsuits and environmental incidents and the availability of coverage under the Corporation s insurance policies; risks and liabilities arising from derailments; transportation of dangerous goods; fluctuations in the supply and demand for natural gas, natural gas liquids ( NGLs ), and iso-octane; assumptions regarding commodity prices; demand for potential egress options; activities of producers, competitors and others; the weather; assumptions around construction schedules and costs, including the availability and cost of materials and service providers; fluctuations in currency and interest rates; credit risks; marketing margins; potential disruption or unexpected technical difficulties in developing new facilities or projects; unexpected cost increases or technical difficulties in constructing or modifying processing facilities; Tidewater s ability to generate sufficient cash flow from operations to meet its current and future obligations; its ability to access external sources of debt and equity capital; changes in laws or regulations or the interpretations of such laws or regulations; political and economic conditions; that any required commercial agreements can be negotiated and completed; and other risks and uncertainties described from time to time in the reports and filings made with securities regulatory authorities by Tidewater. Readers are cautioned that the foregoing list of important factors is not exhaustive. The forward-looking statements contained in this document are made as of the date of this document or the dates specifically referenced herein. For additional information please refer to Tidewater s public filings available on SEDAR at All forward-looking statements contained in this document are expressly qualified by this cautionary statement. Any financial outlook or future-oriented financial information, as defined by applicable securities legislation, has been approved by management of Tidewater as of March 13, 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 pro forma net income and Adjusted EBITDA and annualized 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. 2

3 Non-GAAP Measures Non-GAAP Measures This presentation 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 and amortization, incentive compensation, unrealized gains/losses, non-cash items, transaction costs and other items considered non-recurring in nature. Tidewater Management believes that Adjusted EBITDA provides useful information to investors as it provides 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 securities 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. 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. Net debt is defined as current liabilities, plus bank debt and notes payable, less current assets. 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 MD&A which is available on SEDAR. 3

4 Tidewater Summary High Growth, Canadian NGL, Oil and Natural Gas Midstream and Infrastructure Company Pursuing Canadian natural gas liquids ( NGLs ), oil and natural gas market opportunities through the acquisition and build out of strategic midstream, pipeline, processing, storage, rail, downstream, and export assets Our strategy to create value for our shareholders remains the same with our assets well positioned. We continually find opportunities to serve our customers through long-term fee-based contracts. The NGL, oil and natural gas volume growth we have experienced continues to result in high-quality earnings growth attributable to our core business of fee-based services Tidewater has a diversified asset portfolio that has the potential to benefit in all price environments, encompassing, natural gas storage to extraction to egress and providing optionality to customers. Tidewater is well positioned to benefit significantly from new projects in 2019 including our Pipestone Sour Gas Plant, TransAlta Pipeline Project and expansion of crude oil infrastructure Executed definitive agreements for a 15 year take-or-pay agreement (130 MMcf/day) with TransAlta on a new 20 inch pipeline build ( Pioneer Pipeline ) from one of Tidewater s largest natural gas processing facility (Brazeau River Complex ( BRC )) direct to an end market in TransAlta s large power plants in the Edmonton area. Construction of the project is approximately 70% complete and on time and on budget Regulatory approval for the 100 MMcf/day Pipestone Montney Sour Deep Cut Natural Gas Gathering and Natural Gas Liquids Processing Complex anchored by two 5 and a 10 year take-or-pay agreement for 30MMcf/day each. Currently 100% contracted with firm commitments of approximately 100 MMcf/day ( Pipestone Gas Plant ). Construction of the project is approximately 70% complete and on time and on budget Capitalizing on Management s strong producer and downstream market access relationships, Tidewater can provide producers improved pricing for all their commodities including oil, NGLs and natural gas $13.3 million of net income attributable to shareholders in Q4 2018; record Adjusted EBITDA in Q of $20.9 million and expect Adjusted EBITDA to grow > 50% into the end of 2019 Established three core areas in strategic locations (Deep Basin, Montney and Edmonton) With recently announced Pioneer Pipeline network Tidewater has connectivity from the Montney, to the Deep Basin and into Edmonton and continuing to focus on increased connectivity Tidewater continues to expand its Montney core area with the Pipestone Gas Plant which will be connected to its Pipestone Montney infrastructure/egress hub Three pipe connected oil batteries at Valhalla, Brazeau and Edmonton including a large rail facility at Edmonton. Tidewater rapidly building out oil infrastructure and egress/access solutions for producers and refiners Proven Capital Project Execution In December 2017, 50 MMcf/day expansion at BRC and the construction of strategic new pipelines from BRC were completed on time and on budget at a combined capital cost of $25 million. The pipelines provide access to a new condensate rich capture area and is supported by a 55,000 acre reserve dedication Commissioned 10,000 bbl/day HD2 propane fractionation facility for $25 million of capital and relocation of deep cut turbo expander to BRC for $15 million ahead of schedule and on-budget on industry leading timeline of seven months Planned growth Net Income and Adjusted EBITDA (see slide 15 for further details) Forecast 2019 Net Income and Adjusted EBITDA is expected to be approximately $22 million - $27 million and $100 million - $105 million, respectively Forecast 2020 Net Income and Adjusted EBITDA is expected to be approximately $40 million - $50 million and $125 million - $135 million, respectively 4

5 Tidewater is a High Growth Midstream Company Connectivity Strategy 1 Acquire Strategic Contracted Infrastructure Own key NGL, oil and natural gas infrastructure and gas plants with proximity to multiple transportation options, coupled with take-or-pay and/or reserve dedication agreements Tidewater Pioneer Pipeline network backed by 15 year take-orpay with TransAlta. Offers producers direct connectivity from wellhead, through Tidewater s extensive processing network direct to an end market Pipestone Gas Plant which will connect to Tidewater s Pipestone Infrastructure and egress hub including dual connection to TCPL, Alliance and natural gas storage. 100% contracted with firm commitments Entered into a six-year firm storage service commitment with an investment grade counterparty at its Pipestone Gas Storage Facility for approximately 5 Bcf of storage capacity 2 Optimize Through Organic Investments Enable Tidewater to own a strategic integrated value chain from well head to end market and/or tidewater Significant opportunities within acquired assets to continue to generate incremental Adjusted EBITDA at ~ 20% IRR Recent acquisition includes large diameter pipelines in both Montney and Deep Basin core areas and create new egress options for producers Started to deliver crude oil direct to refiners and tidewater markets 3 Increase Capabilities of Infrastructure Increase third party throughput and/or improve liquids capture/pricing of NGLs, oil and natural gas for all related parties Commissioned 10,000 bbl/d fractionation facility on industry leading timeline and cost in 7 months for $25 MM Aggressively adding connectivity between three core areas in the Montney, Deep Basin and Edmonton assets Adjusted EBITDA expected to grow > 50% into late Enhance Logistics Network & Market Access Infrastructure Various logistics infrastructure including rail, pipelines and trucking Various port and pipeline infrastructure to get egress to export markets 150 railcar facility at Edmonton constructed on time and on budget Tidewater continues to build out network which includes proven natural gas storage in both the Montney and Deep Basin 5

6 Tidewater Facilities and Connectivity 6

7 Overview of Montney Assets & Sanctioned Pipestone Gas Plant Pipestone Gas Plant and fully contracted Construction of the project is approximately 70% complete and on time and on budget Approximately $210 million capital cost and online Q % contracted with firm commitments Ten year take-or-pay for 30MMcf/day with Kelt Exploration Five year take-or-pay for 30MMcf/day with Pipestone Energy Corp Five year take-or-pay for 25MMcf/day with large oil and gas producer Seven-and-a-half-year take-or-pay with 12Bcf volume commitment Five year reserve dedication Executed processing agreement with a second investment grade counterparty Plan to connect to Tidewater infrastructure/egress hub which provides three natural gas egress options in TCPL, Alliance and natural gas storage Anchor tenants have option to acquire combined 35% working interest Entered into a six-year firm storage service commitment with an investment grade counterparty at its Pipestone Gas Storage Facility for approximately 5 Bcf of storage capacity Executed gas storage agreements with multiple investment grade counterparties Tidewater has significant support for future gas processing and liquids handling expansions at Pipestone Montney Processing Facilities & Pipelines 7

8 Tidewater at Pipestone - Key Presence in High Growth Area Crown Advantage Crown Blackbird Crown CNRL Crown Conoco Cenovus Crown Encana Crown Husky Crown Kelt Crown Nuvista Crown Pipestone Energy Corp Crown Sinopec 8

9 Overview of Edmonton Assets Tidewater has over 800 km of key pipelines and valuable right of ways at Edmonton, 600 acres of heavy industrial land at Edmonton/Fort Saskatchewan, and 3 key extraction plant licenses Edmonton assets provide egress/takeaway options for natural gas, oil and NGL production throughout the Deep Basin and Tidewater is now tied into some of the largest industrial consumers of natural gas in Western Canada Over the next two to three years, Tidewater plans to build out its Edmonton Energy Hub on its 600 acres of heavy industrial land and improve connectivity to major hubs at Edmonton Includes the potential for propylene and polypropylene production and/or iso-octane production. Tidewater has received several expressions of interest from various off-take and joint venture parties that Tidewater management has worked with in the past with respect to these products Tidewater has entered into crude oil storage and transportation agreements with various counterparties, including an investment grade counterparty. Tidewater has currently invested minimal capital in new infrastructure related to crude oil storage and transportation services while also utilizing its existing infrastructure Edmonton Processing Facilities & Pipelines 9

10 Overview of Deep Basin Assets Pioneer Pipeline will physically connect Tidewater s largest gas processing complex (BRC) to a large new demand source in TransAlta s Sundance and Keephills power plants and is anchored by a 15 year take-or-pay Construction of the project is approximately 70% complete and on time and on budget Ability for expansion to ~ greater than 400 MMcf/day Ability to connect Montney producers to new end market and avoid TCPL restrictions TransAlta exercised its 50% working interest East Duvernay activity continues to increase around Tidewater s Deep Basin assets, with large investment grade entities in addition to some well capitalized private companies like Vesta, Artis and Kiwetinohk Resources Corp (former 7Gen team) becoming increasingly active In March 2018, Tidewater announced a five year 17.2 net Bcf volume commitment with an investment grade counter party at Ram River In August 2018, Tidewater signed an agreement for an incremental 18 MMcf/day on a five year take-or-pay with the volumes declining approximately 30% per year at Ram River Commissioned 10,000 bbl/day fractionation facility, capable of HD2 propane, at the BRC 45 days ahead of schedule on industry leading timeline of 7 months at a cost of $25 million Tidewater commissioned 40 MMcf/day deep cut in May 2017 on an 8 month schedule for a cost of $15 million, significantly improving NGL recoveries at the BRC BRC egress includes natural gas storage facilities currently capable of injecting approximately 40mmcf/day of natural gas and offering producers improved natural gas pricing option Deep Basin Processing Facilities & Pipelines Pioneer Pipeline Construction Progress Early

11 Tidewater & TransAlta: Pioneer Pipeline $ Per Diameter-Inch-Mile Comparative Natural Gas Pipeline Construction Costs 1 $400,000 $300,000 Pioneer Other Projects $200,000 $100,000 1 Regulatory filings and public disclosure. 11

12 East Duvernay Activity Increasing The Duvernay East Shale Basin has emerged as an attractive earlystage liquids resource play with significant land sales and increased development over the past two years Vesta and Artis were the early entrants into the play, with Vesta buying land previously owned by EOG Resources and Artis exploring the southern trend Given variability and industry experience across other resource plays, expectation that there may be certain sweet spots within the play that are not yet identified Future development appears to be well supported by regional infrastructure and local service providers; degree of future development will dictate extent of localized cost inflation or egress constraints Activity in the area continues to increase around Tidewater s Deep Basin assets, with large investment grade entities in addition to some well capitalized private companies like Vesta, Artis and Kiwetinohk Resources Corp (former 7Gen team) drilling and acquiring land East Duvernay Drilling Activity 12

13 Aggressively Growing Crude Oil Infrastructure Commodity Price (USD/bbl) Management team has significant crude oil infrastructure experience and sold previous entity for a 20x return for shareholders. Tidewater plans to aggressively grow their crude oil infrastructure in the coming years A lack of pipeline transportation capacity has made WCSB oil some of the cheapest in the world, incenting producers to sign longer term crude oil storage, pipeline, terminaling and transportation agreements Tidewater continues to grow its crude oil and refined products infrastructure business and is focused on strengthening customers and contracts. Tidewater will have delivered crude oil to approximately 10 markets by the end of the first quarter of 2019 EBITDA from Tidewater s crude oil pipeline and storage facilities continues to increase $120 Crude Prices and Differentials TWM Acheson Rail Terminal NGL s and Crude/Condensate 150 Car Capacity Blending Skid & Multiple Transloads TWM Acheson Gas Plant Deep Cut Turbo Expander 34 MMcf/d Capacity TransCanada and Pembina Connected ($50) Acheson Site Overview Tidewater Products to Market CN Rail Mainline TWM Property Boundary $100 ($40) $80 $60 $40 $20 ($30) ($20) ($10) Differential (USD/bbl) Jun-14 Oct-14 Feb-15 Jun-15 Oct-15 Feb-16 Jun-16 Oct-16 Feb-17 Jun-17 Oct-17 Feb-18 Jun-18 Oct-18 Feb-19 WTI WCS Ed. Par WCS Diff Ed. Par Diff Source: Bloomberg and Factset. 13

14 Tidewater has a Solid Infrastructure Business With a Strengthening Contracts and Customer Base Top Customers Utilizing Tidewater Facilities Facility Throughput (MMcf/d) Take-or-pay Reserve Dedication Years Remaining TransAlta 130 Yes No 15 TCPL Extraction 100 Yes No 10+ Producer #1 50 No Yes 10 Producer #2 45 Yes Yes 3 Producer #3 30 Yes No 5 Producer #4 30 Yes No 10 Producer #5 25 Yes No 5 Producer #6 20 Yes No 1 Producer #7 20 Yes No 6 Investment Grade Investment NGL Counterparty 1 20 No Yes 15 Producer #8 18 Yes No 5 Producer #9 18 Yes Yes 3 Producer #10 18 Yes No 5 Producer #11 11 No Yes n.a. Producer #12 10 Yes Yes 6 Producer #13 10 Yes No 7.5 Producer #14 9 No Yes n.a. Producer #15 6 Yes Yes 6 Producer #16 6 Yes Yes 10 Producer #17 6 Yes No 8 Producer #18 5 Yes No 4 1 Approximate gas equivalent volumes. 14

15 Annual Net Income and Adjusted EBITDA for TWM Net Income / EBITDA ('000s CAD) Net Debt 140, , , Net income Adjusted EBITDA Net Debt 500, , , ,000 80,000 60, , , ,000 40, ,000 20, ,000 50, and 2020 Assumptions: Assumes average historical throughput and operating costs with the addition of the Pipestone Gas Plant, Pioneer Pipeline and crude oil infrastructure. Contribution to net income for the Pipestone Gas Plant is expected to be approximately $25 - $30 million based on plant throughput of approximately 100 MMcf/d of contracted volume at market rates. Estimated annual operating costs are based on plants of similar size with sour gas processing capability and similar NGL handling capability. Adjusted EBITDA contribution is expected to be approximately $30 - $35 million after adding back depreciation and finance costs based on a 60-year useful life. The project is expected to be online Q Contribution to net income for the Pioneer Pipeline is expected to be approximately $8 - $9 million based on throughput of approximately 130 MMcf/d of contracted volume at market rate transportation tolls. Estimated annual operating costs for the pipeline are based on other pipelines within Tidewater s currently owned infrastructure of similar size and throughput capacity. Adjusted EBITDA contribution is expected to be approximately $10 million after adding back depreciation and finance costs based on a 60-year useful life and 50% working interest. The project is expected to be online Q3/Q Expected net income from crude oil infrastructure assumes terminaling and marketing fees generated from 15 to 20 rail cars per day at a capacity of approximately 550 bbls per car as well as fees generated from existing crude oil storage and pipeline connections. Q Adjusted EBITDA is expected to range from $30 million to $32.5 million ($120 million to $130 million annualized). Forecasted 2020 Adjusted EBITDA is calculated by multiplying fourth quarter 2019 Adjusted EBITDA by four. Tidewater s business is highly-contracted with a strong network of customers of which are backed by take-or-pay contracts, long-term fee for service agreements and reserve dedications. It is expected that the Company s volumes, market rates, operating costs, G&A and depreciation will remain consistent with Q in See Non-GAAP Measures and Forward Looking Information. 15

16 Tidewater Corporate Profile Stock Symbol Common Shares Outstanding TSX: TWM ~331 million Insider Ownership (Fully Diluted) ~6.0% Market Capitalization 1 Net Debt 2 Enterprise Value 3 Total Midstream Processing Capacity (gross/net) and Length of Pipelines (gross/net) Replacement Value of Midstream Assets Annual Dividend $453 million $393 million $846 million >1.5 Bcf/day / >1 Bcf/day >4,000 km / >3,000 km > $2.0 billion $0.04/sh. Current Yield 4 ~3.0% 1 The market capitalization is calculated by multiplying the Corporation s share price as at Mar. 15, 2019 by the number of common shares outstanding. 2 Net debt as at December 31, 2018 is calculated as current liabilities (excluding contribution liability), plus bank debt and notes payable, less current assets. 3 Enterprise Value is calculated as market capitalization plus net debt and is a measure of the Corporation s total value. Enterprise value is not a standard measure under GAAP. 4 Current yield is calculated as annual dividends divided by current share price as at Feb. 28, Current yield is not a standard measure under GAAP. 16