RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:RE:Pipeline SaleThe appeal of 'midstream and infrastructure' is that it is essential and necssary, a basic service that should retain value over time and through economic cycles. Not assets that are made economically viable through the exchange of invented credits. What happens when diesel in BC hits $1.50 or $2/l? Do these credits get scrapped on a change in provincial government? I don't believe that most people are willing to change their habits or spend additional money to lower their own carbon emissions.
I'm going to estimate, based on the 3k bbl/d of diesel that the EBITDA is 1/3 sale of product and 2/3 generation of credits (also makes the $75M number break nicely). Is a $225M project to generate $25M in ebitda a worthwhile project? Probably, but not at TWM's current cost of capital hurdle rates. Not knowing exactly what estimates are going into that number (and to be clear, we never will) for how much the LCFS is estimated to be worth or how much the spread on the production of renewable diesel is, we'll have to judge the economics of the project on what the eventual funding of it looks like.
If it is like the Pipestone storage deal, where the anonymous partner has preferred rights to generated cashflow, it could, like the Pipestone storage deal, fail to deliver any cash to the benefit of TWM.
I'm not opposed to the popularity of highlighting ESG, especially by energy companies. The ability to value aspects of the company that aren't necessarily economic but beneficial in other terms is what should separate us from the Russia, Tukey, China and failed ShaleCos of the world. I think it's good for these publicly traded companies to be more transparent to not only their shareholders but the communities they serve, and to put some effort and money into doing better. But I'm not as thrilled at the prospect of a lucrative project underwritten by public money: I don't think it's a good look and adds an element of political risk. I think Joel's sales pitch is that they create a hedge in their company by having a division dedicated to something called 'renewables' to offset increasing carbon costs on the other aspects of the business, and I'd buy that if they weren't stretched so thin already and relying on provincial grants to develop the project.