November 11, 2022
Tidewater Midstream
Solid operating and financial results
Our view: Tidewater Midstream delivered a solid quarter of operating and financial results, which we believe will continue in the coming quarters. While the capital cost increase for the Renewable Diesel project housed within Tidewater Renewables puts a damper on the quarter, the net impact to Tidewater Midstream is immaterial (i.e., less than $0.05/share). Overall, we view the stock as an attractive way for risk tolerant investors to gain exposure to Western Canadian refining margins as well as increased natural gas and natural gas liquids production levels.
Key points:
Better-than-expected EBITDA; DCF/share was impacted by higher-than- forecast maintenance capex. In Q3/22, Adjusted EBITDA was $62.1 million compared to our estimate of $60.0 million and consensus of $59.7 million (eight estimates; range of $56.4-62.0 million). DCF/share was $0.02 versus our estimate of $0.05 with the lower-than-expected cash flow being primarily driven by higher-than-forecast maintenance capex (partly due to quarterly timing) and higher-than-forecast interest expense.
EBITDA guidance increased; higher maintenance capex for 2022. Tidewater Midstream noted that it now expects 2022 EBITDA to be in a range of $235-255 million (previously $230-245 million). Our estimate and consensus for 2022 EBITDA heading into the quarter was $246 million. For maintenance capex, Tidewater Midstream noted that inflationary pressures and scope changes result in a higher guidance range on a deconsolidated basis of $40-45 million (up from $35-40 million) for 2022.
Solid volume increases for the gas processing facilities. The Pipestone gas plant processed an average volume of 104 MMcf/d prior to its planned turnaround, which represented a 6% year-over-year increase and a 3% sequential increase from Q2/22. At the Brazeau River Complex (BRC), volumes averaged 156 MMcf/d in Q3/22, which was a 17% year-over-year increase and a 10% sequential increase versus Q2/22.
Not much new on a potential Pipestone expansion. The company continues to progress its work on a potential expansion at the Pipestone gas plant, including the financing plan. On the conference call, the company noted that there is ability to adjust the originally contemplated processing fees to account for the current macro environment (i.e., capital cost inflation, higher interest rates, etc.).
Modest adjustments to our forecast. Our new EBITDA estimates for 2022, 2023 and 2024 are $250 million, $293 million and $316 million, respectively (up from $246 million, $291 million and $311 million, respectively). For DCF/share, our new 2022, 2023 and 2024 DCF/share estimates are $0.22, $0.25 and $0.25, respectively (down from $0.25, $0.27 and $0.26, respectively). The slight reduction in our estimates reflects higher interest expense in all years as well as higher maintenance capex in 2022.