Tidewater Midstream and Infrastructure Ltd T.TWM.DB.A

CIBC

[retiredcf]

EQUITY RESEARCH
November 28, 2022 Flash Research
Tidewater Midstream & Infrastructure And
Tidewater Renewables

CEO Transition Creates A Period Of Adjustment

The Boards of Directors for Tidewater Midstream and Infrastructure and
Tidewater Renewables have announced that the Chairman and CEO of both companies, Joel MacLeod, is stepping down from his management and board roles to pursue other opportunities. The boards have appointed Robert Colcleugh as interim Chief Executive Officer of both companies, effective immediately. Thomas Dea, a member of the board of Tidewater Midstream, will serve as Chairman at Tidewater Midstream and Mr. Colcleugh will serve as Chairman of Tidewater Renewables. Brett Gellner will continue to serve as lead independent director of Tidewater Renewables following Mr. Macleod's departure. We see the possibility of new CEOs at each company in the fullness of time.

The circumstances around Mr. MacLeod’s departure are somewhat unclear and a major surprise given his significant involvement with both companies. This news comes after other executive changes at both companies in recent months. Mr. Macleod also owns 2.77% of the outstanding shares of Tidewater Midstream and less than a percent of Tidewater Renewables. With no disclosed reason for the departure, we believe there may have been irreconcilable differences with the board of directors. Although unconfirmed by the company or the board, one possible area we see for diverging opinions is with respect to investing in the Pipestone plant expansion project. It is conceivable that management viewed it as an attractive use of capital, whereas the board might be more conservative and prefer to see the renewable diesel refinery (HDRD) project with Tidewater Renewables to completion in 2023 before undertaking major new projects. Although impossible to rule out, we are not aware of any issues, such as cost challenges with the HDRD project. We do not believe the HDRD project is the catalyst for the CEO transition, but the project still contains execution risk. The budget was increased with Q3 results on November 10, and with a new investor (AIMCo) committing to new credit facilities in late October, we view it as unlikely that the budget would be increased again in short order. The company must still execute at a high level to complete the project on the
current timeline and budget, and we’ve seen multiple cost increases in other projects across the industry, notably major pipeline projects.

Mr. Colcleugh has been a Director of Tidewater Midstream since May 25,
2017 and was previously Chief Executive Officer of a Toronto Stock
Exchange listed oil and gas producer and a Managing Director of Investment Banking for Macquarie Capital Markets. While Mr. Colcleugh brings significant industry experience, the sudden departure of a critical member of the company is likely to create a period of adjustment for the stocks. With an existing board member appointed as interim CEO, we are unlikely to see a change in strategy in the short-term.