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Natural Gas Midstream, Infrastructure Firm to Acquire Oil Refinery

Streetwise Reports
0 Comments|3 days ago

The pros and cons of the deal are discussed in an iA Securities report.

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In an Oct. 8 research note, iA Securities analyst Elias Foscolos reported that Tidewater Midstream and Infrastructure Ltd. (TWM:TSX; TWMIF:OTCMKTS) entered an agreement to acquire Husky Energy's Prince George Refinery (PGR) for about $277 million. The deal is expected to close in Q4/19.

IA Securities wants to wait and see how this "bold acquisition" plays out for Tidewater, Foscolos indicated. On one hand, he pointed out, Tidewater "should benefit from high crack spreads making the acquisition attractive." Recent spreads averaged about $50–55 per barrel ($50–55/bbl) whereas Tidewater used a $44/bbl calculation in determining annual EBITDA contributions from PGR would be around $75 million.

This difference constitutes upside for Tidewater as crack spreads are expected to stay higher for the ensuing 12 months and the break even point for the company is an estimated $30/bbl barrel, according to iA estimates.

On the other hand, Foscolos highlighted, Tidewater's purpose in doing the deal with Husky is to help delever its balance sheet to two and a half to three and a half times. Because refining is a different business segment for Tidewater and deleveraging relies on the acquired asset's future performance, the strategy is risky.

Due to that heightened risk, iA Securities trimmed its target price on Tidewater to CA$1.75 per share from CA$1.80. In comparison, the energy company's share price today is around CA$0.98.

Also, Tidewater is financing the PGR acquisition with debt, which requires an up to $600 million increase to its credit facility and a $100 million term loan.

Finally, Tidewater has a five-year offtake agreement with Husky covering 90% of volumes produced by PGR. While this "adds certainty for Tidewater, the sale of Husky's retail business adds longer-term uncertainty," Foscolos commented.

IA Securities has a Speculative Buy rating on Tidewater.

 

Disclosure:
1) Doresa Banning compiled this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor. She or members of her household own securities of the following companies mentioned in the article: None. She or members of her household are paid by the following companies mentioned in this article: None.
2) The following companies mentioned in this article are billboard sponsors of Streetwise Reports: None. Click here for important disclosures about sponsor fees.
3) Comments and opinions expressed are those of the specific experts and not of Streetwise Reports or its officers. The information provided above is for informational purposes only and is not a recommendation to buy or sell any security.
4) The article does not constitute investment advice. Each reader is encouraged to consult with his or her individual financial professional and any action a reader takes as a result of information presented here is his or her own responsibility. By opening this page, each reader accepts and agrees to Streetwise Reports' terms of use and full legal disclaimer. This article is not a solicitation for investment. Streetwise Reports does not render general or specific investment advice and the information on Streetwise Reports should not be considered a recommendation to buy or sell any security. Streetwise Reports does not endorse or recommend the business, products, services or securities of any company mentioned on Streetwise Reports.
5) From time to time, Streetwise Reports LLC and its directors, officers, employees or members of their families, as well as persons interviewed for articles and interviews on the site, may have a long or short position in securities mentioned. Directors, officers, employees or members of their immediate families are prohibited from making purchases and/or sales of those securities in the open market or otherwise from the time of the interview or the decision to write an article until three business days after the publication of the interview or article. The foregoing prohibition does not apply to articles that in substance only restate previously published company releases.

Disclosures from iA Securities, Tidewater Midstream and Infrastructure Ltd., Research Update, October 8, 2018

Conflicts of Interest: The research analyst and or associates who prepared this report are compensated based upon (among other factors) the overall profitability of iA Securities, which may include the profitability of investment banking and related services. In the normal course of its business, iA Securities may provide financial advisory services for the issuers mentioned in this report. iA Securities may buy from or sell to customers the securities of issuers mentioned in this report on a principal basis.

Analyst's Certification: Each iA Securities research analyst whose name appears on the front page of this research report hereby certifies that (i) the recommendations and opinions expressed in the research report accurately reflect the research analyst's personal views about the issuer and securities that are the subject of this report and all other companies and securities mentioned in this report that are covered by such research analyst and (ii) no part of the research analyst's compensation was, is, or will be directly or indirectly, related to the specific recommendations or views expressed by such research analyst in this report.

Analyst Trading: iA Securities permits analysts to own and trade in the securities and or the derivatives of the issuer under their research coverage, subject to the following restrictions. No trades can be executed in anticipation of coverage for a period of 30 days prior to the issuance of the report and 5 days after the dissemination of the report to our clients. For a change in recommendation, no trading is allowed for a period of 24 hours after the dissemination of such information to our clients. A transaction against an analyst's recommendation can only be executed for a reason unrelated to the outlook of the stock for the issuer and with the prior approval of the Director of Research and the Chief Compliance Officer.

In the past 12 months, Industrial Alliance Securities Inc. has managed or co-managed a public offering of securities for the issuer.

The analyst has visited the issuer's operations. No payment or reimbursement was received from the issuer for the associated travel costs.

 


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