Tidewater Midstream and Infrastructure Ltd. Announces Year End 2016 Results, Ten-Year Processing Agreement and Reserve Dedication at the Brazeau River Complex, Strategic Acquisitions, Operational Update and Increase to Credit Facility
Tidewater Midstream and Infrastructure Ltd. ("Tidewater" or the "Corporation") (TSX VENTURE: TWM) is pleased to announce that it has filed its audited consolidated financial statements, Management's Discussion and Analysis ("MD&A") and Annual Information Form for the year ended December 31, 2016.
Ten-Year Processing Agreement and Reserve Dedication at BRC
Tidewater has reached an agreement in principal for a ten-year processing and reserve dedication with a well-capitalized, high-growth private company that is expected to bring the BRC near or at capacity into the foreseeable future. The related processing fees are in line with the existing processing fees at the BRC and Tidewater will market all NGLs associated with the reserve dedications, where Tidewater continues to pursue opportunities to improve netbacks for its customers. The arrangement is expected to replace the largest customer at the BRC, whose existing take-or-pay agreement ends in the second quarter of 2018. Drilling activity around the BRC remains at all-time highs; and as a result of this, Tidewater has started to scope an expansion of the BRC to increase its processing capacity and add additional natural gas and NGL takeaway options for producers, which includes the previously announced three proven natural gas storage reservoirs that are directly connected to the BRC. As part of the arrangement, Tidewater will divest of the previously acquired undeveloped mineral rights, which were announced on November 16, 2016 in return for a three to four well drilling commitment and area dedication for the life of the reserves on approximately 30,000 acres of undeveloped lands.
Additionally, Tidewater is expected to invest $10-15 million of capital to tie-in a new core area the private company owns and is not currently connected to the BRC. The capital will be backstopped by a ten-year processing agreement and reserve dedication on an additional 25,000 acres. The agreement is expected to be finalized in the next few weeks and is subject to customary closing conditions.
The NEBC Acquisition
Tidewater entered into an agreement with Predator Oil BC Ltd. ("Predator"), a related party, to acquire a non-operated 40% working interest in a 30 MMcf/d sour, shallow-cut gas processing facility in the Parkland area of NEBC, approximately 1,000 acres of greenfield surface land in the Fort St. John area of NEBC and an 80 km, cross-border sales gas pipeline in the Cordova area of NEBC for a total consideration of $10 million in cash. As part of the consideration, Tidewater is also transferring Predator approximately 2,500 net acres of undeveloped lands previously acquired in October 2015.
The Parkland Gas Plant and the Land are in a new core area for Tidewater, within the heart of the Montney play in NEBC near numerous pipeline egress options for NGL and natural gas connectivity and access to rail which have current and future opportunities to become a major energy hub in NEBC, with the potential to connect Tidewater's Montney infrastructure/egress hub in the Pipestone area. The Sales Pipeline is connected to the 140 MMcf/d Wildboy gas processing facility in the Cordova area of NEBC, which Predator has a 100% working interest in, and connects to Westcoast Energy Inc. in NEBC and Nova Gas Transmission Ltd. in Alberta. As part of the transaction, Predator has entered an agreement for gas processing at the Parkland Gas Plant with an area dedication for the life of the reserves and an agreement for transportation on the Sales Pipeline with an area dedication for the life of the reserves. Tidewater estimates the NEBC Acquisition to generate annualized EBITDA of $1.8-2.0 million, which is a 5.0-5.5x multiple based on total consideration of $10 million in cash.
Predator is a related party by virtue of Tidewater's Chairman, President and CEO, Joel MacLeod, and one of Tidewater's Directors, Stephen Holyoake, both being shareholders and Directors of Predator. Tidewater formed an independent special committee (the "Independent Special Committee") comprised of two independent Board of Directors to evaluate the NEBC Acquisition and the NGL Trucking Acquisition referred to below. CIBC and Stikeman Elliott LLP were retained to provide financial and legal advice, respectively, to the Independent Special Committee. CIBC provided an opinion to the Independent Special Committee to the effect that, as of the date of such opinion and subject to the assumptions, limitations and qualifications contained herein, the consideration to be paid by Tidewater pursuant to the NEBC Acquisition is fair, from a financial point of view, to Tidewater.
The NEBC Acquisition constitutes a "related party transaction" as such term is defined under Multilateral Instrument 61-101 - Protection of Minority Security Holders in Special Transactions ("MI 61-101"). Tidewater is relying on the exemptions from the formal valuation and minority approval requirements under MI 61-101. Tidewater is exempt from the formal valuation requirement of MI 61-101 in reliance on sections 5.5(a) and (b) of MI 61-101 as the fair market value of the NEBC Acquisition, insofar as it involves interested parties, is not more than the 25% of Tidewater's market capitalization, and no securities of Tidewater are listed or quoted for trading on prescribed stock exchanges or stock markets. Additionally, Tidewater is exempt from minority shareholder approval relying on section 5.7(1)(a) of MI 61-101.
The Independent Special Committee determined that the NEBC Acquisition was in the best interests of Tidewater and recommended that the Tidewater Board of Directors approve the NEBC Acquisition. On March 29, 2017 the Tidewater Board of Directors approved the NEBC Acquisition. The NEBC Acquisition is subject to ordinary conditions including the acceptance of the TSX Venture Exchange.
The NGL Trucking Acquisition
Tidewater also entered an agreement with Mach Energy Services Inc. ("Mach") to acquire six tractors, seven NGL trailers and three condensate trailers for a total consideration of $3.5 million in cash. The NGL Trucking Acquisition enhances the value of the recently announced fractionation facility at the BRC gas plant and NGL truck-out gas processing facilities by providing further control of its operations, and is consistent with Tidewater's strategy to enhance its logistics network and market access infrastructure throughout the natural gas and NGL value chain. Tidewater estimates the NGL Trucking Acquisition to generate annualized EBITDA of $0.9 million, which is a 4.0x multiple based on total consideration of $3.5 million in cash.
Mach is a related party by virtue of being owned or controlled by Tidewater's Chief Financial Officer, Joel Vorra; Vice President, Logistic and Midstream Operations, Jarvis Williams; and, various other Tidewater employees, officers and related parties including Chairman, President and CEO, Joel Macleod and one of Tidewater's Directors, Steve Holyoake. Mach was formed prior to the incorporation of Tidewater as an independent, standalone business. The executive officers who owned shares of Mach have committed to invest a significant portion of the proceeds received from the Mach disposition into the acquisition of Tidewater common shares in the open market. CIBC provided an opinion to the Independent Special Committee to the effect that, as of the date of such opinion and subject to the assumptions, limitations and qualifications contained herein, the consideration to be paid by Tidewater pursuant to the NGL Trucking Acquisition is fair, from a financial point of view, to Tidewater.
The NGL Trucking Acquisition constitutes a "related party transaction" as such term is defined under MI 61-101. Tidewater is relying on the exemptions from the formal valuation and minority approval requirements under MI 61-101. Tidewater is exempt from the formal valuation requirement of MI 61-101 in reliance on sections 5.5(a) and (b) of MI 61-101 as the fair market value of the NGL Trucking Acquisition, insofar as it involves interested parties, is not more than the 25% of Tidewater's market capitalization, and no securities of Tidewater are listed or quoted for trading on prescribed stock exchanges or stock markets. Additionally, Tidewater is exempt from minority shareholder approval relying on section 5.7(1)(a) of MI 61-101.
The Independent Special Committee determined that the NGL Trucking Acquisition was in the best interests of Tidewater and recommended that the Tidewater Board of Directors approve the NGL Trucking Acquisition. On March 29, 2017, the Tidewater Board of Directors approved the NGL Trucking Acquisition. The NGL Trucking Acquisition is subject to ordinary conditions including the acceptance of the TSX Venture Exchange.
Corporate throughput is currently at all-time highs with some processing facilities operating at record levels through the quarter. Drilling activity in Tidewater's core Deep Basin area has continued to accelerate to all-time highs with approximately 370 wells being licensed within 60 miles of the BRC in the past six months contributing to strong first quarter 2017 results. Tidewater continues to evaluate several organic capital growth opportunities including an expansion at the BRC. The Corporation has also benefited from increased throughput at its Edmonton area assets with the reactivation of the Fort Saskatchewan Extraction Plant and continues to grow its NGL business while working with producers to increase netback pricing. Commissioning of Tidewater's 10,000 bbl/d fractionation facility will further integrate the Corporation's value chain and help achieve its goal of offering producers better pricing.
Tidewater also continues to increase its exposure to the Montney resource play development with the move into North East British Columbia and the ongoing development of the Montney Egress Hub in the Pipestone area. Tidewater has received significant interest from Montney producers for processing, fractionation, egress and marketing solutions.
Tidewater is nearing completion of a portion of its previously announced capital projects, with $60 -- $65 million deployed including its 10,000 bbl/d fractionation facility at the BRC, relocation of the idled turbo expander from the Edmonton area, and its Acheson rail facility. Tidewater remains on time and on budget on its capital program and expects the above projects to be commissioned at various stages through the second quarter of 2017. The EBITDA generated from Tidewater's capital program is expected to be in line with the amount previously disclosed.
Tidewater has commenced reservoir injections on Phase I of its Montney infrastructure/egress hub in the Pipestone area, which was completed on time and on budget. In light of the recent and continued volatility in AECO pricing as well as AECO summer and winter spreads, the Corporation continues to advance toward a final investment decision on Phase II of the project which will include connections to both Alliance and TCPL and continues to receive interest from several investment grade counter parties to contract the available capacity on a five-year basis, which will further diversify Tidewater's customer base. It is now expected Tidewater will make a final investment decision by the end of 2017. The capital required to move the project forward is currently accounted for in Tidewater's total $125 million capital budget previously announced through the end of 2017. If approved, Tidewater expects to commence operations in the second quarter of 2018.
Tidewater continues to progress on its 50-100 Mmcf/day sour gas plant which would be backed by take or pay contracts and/or reserve dedications. Although no certainty can be provided, Tidewater is encouraged by the progress and support and expects a final investment decision in 2017. The Pipestone Gas Plant is expected to be directly connected to Tidewater's Montney infrastructure/egress hub in the Pipestone area.
Credit Facility Increase
Tidewater is also pleased to announce that it has increased availability under its credit facility from $120 million to $180 million. The National Bank Financial led facility includes ATB Financial, Canadian Imperial Bank of Commerce, Business Development Bank, and Canadian Western Bank.
Stock Options and RSUs
The Corporation has approved a grant of 1,659,000 restricted share units and 1,231,000 stock options to directors, officers, employees and consultants of the Corporation. The options will have an exercise price equal to the price per common share on the date of grant, will vest over a period of three years, and will expire five years from the date of grant. The Corporation has determined that exemptions from the various requirements of TSX Venture Exchange Policies are available for the granting of the options and RSUs.
Tidewater was incorporated under the Alberta Business Corporations Act on February 4, 2015 to pursue the purchase, sale and transportation of natural gas liquids ("NGLs") throughout North America and export to overseas markets. Tidewater is engaged in the acquisition of oil and gas infrastructure, including gas plants, pipelines, NGLs by rail, export terminals and storage facilities. Tidewater continues to investigate opportunities with North American producers and mid-streamers for the acquisition and operation of such infrastructure assets.
Additional information relating to Tidewater is available on SEDAR at www.sedar.com and at www.tidewatermidstream.com.
The Toronto Stock Exchange has neither approved nor disapproved the information contained herein.