Tidewater Midstream’s renewables affiliate files for IPO

Calgary-based Tidewater Midstream and Infrastructure has created Tidewater Renewables, an energy transition company focused on the production of low-carbon fuels.

Calgary-based Tidewater Midstream and Infrastructure has created Tidewater Renewables, an energy transition company focused on the production of low-carbon fuels. A preliminary prospectus for an initial public offering of Tidewater Renewables’ common shares on the Toronto Stock Exchange was filed this week. The number and price of the shares to be sold have not yet been determined. Tidewater Midstream is backed by Birch Hill Equity Partners.

PRESS RELEASE

Tidewater Midstream Announces the Creation of Tidewater Renewables and Capitalization via Initial Public Offering

CALGARY, AB, July 21, 2021 /CNW/ – Tidewater Midstream and Infrastructure Ltd. (“Tidewater Midstream”) is pleased to announce the creation of Tidewater Renewables Ltd. (“Tidewater Renewables”) as a wholly owned subsidiary.

Tidewater Renewables has been formed to become a multi-faceted, energy transition company focusing on the production of low carbon fuels. The creation of and the initial public offering of Tidewater Renewables is a result of a thorough evaluation of financing alternatives with the goal of funding Tidewater Renewables’ portfolio of clean fuel projects while allowing Tidewater Midstream to continue to deleverage through 2021. A preliminary prospectus qualifying the initial public offering of Tidewater Renewables common shares to the public (the “Offering”) was filed today.

Tidewater Renewables intends to pursue a growth strategy focused on building out ‎its three proposed operating business units: (i) renewable diesel, (ii) renewable hydrogen, and (iii) renewable natural gas through the ownership, development, and operation of clean fuels projects and related infrastructure, utilizing proven technologies. Upon its formation, Tidewater Renewables will ‎acquire certain pre-existing operating assets as well as a number of growth projects from Tidewater Midstream that will provide an initial platform ‎for the renewable diesel, renewable hydrogen, and renewable natural gas business units (the “Acquired Assets”). The Acquired Assets include existing logistics (loading, unloading and rail assets for feedstock ‎coming in and renewable fuels going out at Prince George Refinery (“PGR”), processing activities (existing processing capacity and ‎hydrogen production required for the co-processing projects at PGR), storage (tankage for storage and blending ‎for renewable diesel at PGR and storage reservoirs for renewable natural gas located at the Brazeau River Complex), and utilities that will facilitate the operation ‎of the renewable fuels growth projects as they come on line. Tidewater Renewables expects the Acquired Assets to generate approximately $40 million of run-rate EBITDA primarily from take-or-pay contracts with an average term of ten to fifteen years and Tidewater Midstream as the counterparty, and from select other non-take-or-pay activities.

Tidewater Renewables initial growth projects will target the ‎production of renewable diesel via: i) the Canola Co-‎Processing ‎‎‎Project (canola-based) utilizing existing PGR infastructure and expected to come online in Q4 2021, ii) the FCC Co-‎Processing ‎‎Project (wood-based biocrude) also utilizing existing PGR infastructure and expected to come online in Q2 2023, and iii) the Renewable ‎Diesel & Renewable Hydrogen Complex, which is a separate but co-located asset to PGR, that management expects to be online in Q1 2023. Management anticipates the Canola Co-Processing Project to generate approximately $5 million of EBITDA in 2022 on a full year run rate basis, the FCC Co-Processing Project to generate approximately $6 million of EBITDA in 2023 on a full year run rate basis, and the Renewable Diesel & Renewable Hydrogen Complex to generate approximately $90 – 95 million of EBITDA in 2023 on a full year run rate basis based on certain operating assumptions fully described in the prelliminary prospectus. Additional projects include initiatives in the renewable natural gas and renewable hydrogen business units and are in the planning stages. For additional detailed information on Tidewater Renewables’ current and future projects please refer to the preliminary prospectus.

Consideration to Tidewater Midstream for the Acquired Assets is $180 million of cash made up of net proceeds from the initial public offering and drawn amounts on a newly created Tidewater Renewables $150 million bank line, as well as a majority equity stake in Tidewater Renewables after closing the Offering (equity stake to be determined by ultimate price and size of the Offering). Net proceeds from the Offering will be entirely used to fund a portion of the acquisition of the

Acquired Assets from Tidewater Midstream.
Tidewater Renewables will be led by Joel A. MacLeod, as Executive Chairman and Chief Executive Officer, Joel K. Vorra, ‎as President and Chief Financial Officer and Krasen V. Chervenkov, Executive Vice-President, Business Development and Strategy. As part of the transaction, Tidewater Renewables will enter into a Shared Services Agreement pursuant to which Tidewater Midstream will provide certain administrative and management services required to operate, administer and maintain the Acquired Assets.

Upon completion of the Offering, Tidewater Renewables intends to have a majority-independent Board of Directors and is expected to enter into a Governance Agreement with Tidewater Midstream. Pursuant to the Governance Agreement, the Board of Directors will have an independence sub-committee composed of the board members that are independent from Tidewater Midstream which will be tasked with determining material matters related to Tidewater Midstream including material contracts, commercial agreements and any disputes between Tidewater Midstream and Tidewater Renewables.

Strategic & Financial Benefits Accruing to Tidewater Midstream
Establishes a pure-play, publicly traded vehicle for pursuing and funding growth opportunities in the renewable fuels sector
Transaction unlocks significant value from energy transition assets for Tidewater Midstream shareholders
Tidewater Midstream retains material ownership of Tidewater Renewables

Upon completion of the Offering, Tidewater Midstream expects to hold a majority interest in Tidewater Renewables

Tidewater Midstream retains over $160 million of run-rate EBITDA from its existing midstream, marketing and extraction and downstream core business and a majority equity interest in the $40 million of run-rate EBITDA contained within Tidewater Renewables

Following the completion of the Offering, Tidewater Midstream will retain full control and ownership of its existing core assets including the Brazeau River Complex, the Pipestone Gas Plant and the Prince George Refinery
Provides proceeds of approximately $180 million to repay debt and support Tidewater Midstream delevering efforts. The combination of the Offering and the closing of the Pioneer Pipeline disposition enables Tidewater Midstream to significantly reduce leverage and improves Tidewater Midstream’s balance sheet:
Immediately achieves Tidewater Midstream’s previous twelve-month leverage target of 3.0x to 3.5x total debt to EBITDA with a near term target of under 3.0x
Provides access to material pools of capital targeting energy transition and ESG focused equities

Completion of the Offering is subject to, and conditional upon, the receipt of all necessary approvals, including regulatory approvals. The Offering is expected to close in August 2021. CIBC Capital Markets and National Bank Financial are acting as co-lead underwriters for the Offering.