The third quarter of 2017 saw continued volatility in the AECO gas price as well as restrictions on TransCanada Corporation’s Canadian Mainline where producers at times struggled to get their gas to market, noted Tidewater Midstream and Infrastructure Ltd.

With NGL pricing near 24-month highs, Tidewater continues to work with producers to find additional egress options including natural gas storage and pipeline egress to ensure producers are able to continually flow volumes and find the best possible pricing for their products. Natural gas storage and pipeline egress options will all be supported by long term contracts.

Tidewater has focused its efforts in core liquids rich areas in the Alberta Deep Basin and Montney and continues to work on pipeline egress options into the Edmonton area. Going forward, Tidewater expects to manage volatility in the AECO gas price through the continued development of gas storage and pipeline egress options.

In the third quarter, Tidewater started natural gas storage test injections, providing a proven egress solution for producers at the Brazeau River Complex (BRC) and near Pipestone. With the proven natural gas storage reservoirs at Brazeau and Pipestone there is potential for Tidewater to recognize significant storage EBITDA when AECO prices are under pressure.

Highlights  

The company maintained a conservative payout ratio of approximately 34 per cent with distributable cash flow of $9.8 million in the third quarter of 2017, compared to $8.8 million last year. The company reported a loss of $38,000 in Q3 compared to income of $2.4 million last year.

Final investment decision was reached on a 100 mmcf/d sour, deep-cut Montney gas plant with acid gas injection and 20,000 bbls/d of NGL processing capability, as well as an extensive gathering pipeline network in the Pipestone area near Grande Prairie.

Tidewater announced a $51 million acquisition of assets with a replacement value in excess of $900 million and generating EBITDA of approximately $10 million in 2018. The acquisition creates a backbone for the Tidewater network between the Montney and Deep Basin and includes a ten-year reserve dedication agreement.

The company received conditional approval from its banking syndicate to increase its credit facility from $180 million to $250 million. The credit facility increase is expected to close in November 2017.

Tidewater extended the term of a take-or-pay processing agreement with a well-capitalized producer at the Brazeau River Complex (BRC) by an additional two years to December 2020 and increased the volume commitment by approximately 10 mmcf/d to 30 mmcf/d with a provision to deliver volumes up to 45 mmcf/d throughout the term.

Tidewater is focused on delivering approximately 20 per cent annualized EBITDA per share growth over the next 24 months.

The company plans to exit 2017 with run-rate adjusted EBITDA of approximately $80 million with targeted net debt of approximately $150 million on its $250 million credit facility. Revised net debt assumes closing the Deep Basin and Montney acquisition in the fourth quarter of 2017 and early stages of construction on the new Pipestone Montney Sour Gas Plant.

Tidewater has received conditional approval from the Toronto Stock Exchange to graduate from the TSX Venture Exchange and list its common shares on the TSX. Tidewater expects its shares to begin trading on the TSX in November 2017.

The company’s extraction plants in the Edmonton area performed well in the quarter and together with natural gas storage act as a natural hedge to low AECO gas prices.

Tidewater’s 10,000 bbl/d C2+ fractionation facility and 40 mmcf/d of additional deep cut processing capacity at the BRC continue to outperform and throughput levels have exceeded expectations with no material downtime since commissioning.

Tidewater’s 50 mmcf/d expansion at the BRC remains on-time and on-budget with completion anticipated by the end of 2017. Tidewater also expects to complete construction of the previously disclosed key strategic pipelines both on-time and on-budget. The pipelines will provide access to a new core area for the BRC which is supported by a 55,000 acre reserve dedication and a three to four horizontal well drilling commitment. Drilling activity remains strong around Tidewater’s core infrastructure in the Deep Basin area and the company continues to evaluate several egress solutions around the BRC including storage and pipeline options which are attracting significant producer interest.

Tidewater successfully reactivated the recently acquired deep cut extraction plant in late July, significantly ahead of schedule and under budget and is currently running at 50 per cent of expected capacity. Management expects the deep cut extraction plant to meet volume and EBITDA forecasts in 2018 as previously disclosed.

Capital program

Capital costs for Tidewater’s Pipestone Montney Sour Gas Plant are expected to be approximately $210 million with expected in service date of mid-2019 where Tidewater’s two anchor tenants have the option to purchase a combined approximate working interest of 35 per cent prior to commissioning the plant. The project will be funded through a combination of internally generated cash flow and undrawn capacity under the company’s existing credit facility. Tidewater continues to progress its plan to add large gathering lines throughout the Montney to extend the reach of the project.