Tidewater Midstream Q1 2020 losses near $40 million, expects Q2 pipeline sale
Tidewater Midstream and Infrastructure Ltd., Calgary, had a first-quarter 2020 net loss of $39.6 million as compared with $7.1 million in first-quarter 2019, predominantly related to unrealized losses on derivative contracts of $46.3 million due to volatility in commodity prices, foreign exchange, and interest rates in 2020.
Tidewater’s first-quarter 2020 sale of the Pioneer pipeline continues to proceed on previously disclosed terms and timeline for cash proceeds of $138 million which Tidewater will use to reduce indebtedness. Tidewater and TransAlta Corp. entered a letter of intent to sell the majority of assets of Pioneer Pipeline LP to Nova Gas Transmission Ltd. (OGJ Online, Mar. 12, 2020). The parties are expected to enter into a purchase and sale agreement on or about May 31, 2020, and the proposed transactions are expected to close concurrent with regulatory approval.
All third-party infrastructure is now in place at Tidewater’s Pipestone gas plant and throughput at the plant reached its 100-MMcfd design capacity and is averaging 80 MMcfd. Pipestone is fully contracted with over 80% of its volume under take or pay contracts.
Pipestone includes acid gas injection wells, a saltwater disposal well, and pipelines directly connected to the Pipestone gas storage site, as well as connections to both Alliance and TC Energy pipelines. The plant is also pipeline connected for C2+ and C5+ streams. Tidewater processed an average volume of 65 MMcfd in first-quarter 2020.
On Nov. 1, 2019, Tidewater closed its acquisition of the 12,000-b/d Prince George refinery (PGR). PGR is a light oil refinery that predominantly produces low sulphur diesel and gasoline, in addition to other products, to supply the greater Prince George, BC, region. PGR has onsite storage greater than 1-million bbl and flexible logistics, with pipeline, rail, and truck connectivity in place. During first-quarter 2020, throughput and production at PGR were in line with Tidewater’s expectations at over 90%.
Crack spreads at PGR have remained above $50/bbl vs. Tidewater's forecast of $44/bbl, but demand on refined products at Prince George decreased 10-20% for the last 2 weeks of March and the first 2 weeks of April. Refining margins for first-quarter 2020 will be impacted as PGR continues to process higher cost crude purchased before the price decline.
With refined product pricing forecast to increase over the medium term, and the current price at which Tidewater is acquiring crude oil feedstock for PGR, Tidewater expects a positive impact to margins in second-quarter 2020 which will partially offset the expected decline in demand. Tidewater anticipates that these factors resulting from the effects of the COVID-19 pandemic will impact Tidewater's first and second quarter earnings by 10-20%.
Husky Energy Inc. has issued a notice of force majeure under the offtake agreement at PGR as a result of decreased refined product demand related to COVID-19. Husky has indicated it remains committed to working with Tidewater on the impact to volume forecasts and the companies are actively exploring opportunities for incremental demand and volumes through second-quarter 2020. Tidewater, however, has advised Husky of its position that the force majeure notice is invalid.