Tidewater Renewables Ltd

TSX:LCFS

Earnings Call Transcript

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the Tidewater Midstream and Infrastructure Limited and Tidewater Renewables Limited Third Quarter 2025 Financial Results Conference Call. [Operator Instructions] This call is being recorded on Thursday, November 13, 2025.

I would now like to turn the conference over to Ian Quartly, Chief Financial Officer. Please go ahead, sir.

[Ian Quartly, executive]

Thanks, Chloe, and welcome, everyone, to the joint conference call for the third quarter 2025 results of both Tidewater Midstream and Infrastructure Limited and Tidewater Renewables Limited. Joining me today is our CEO, Jeremy Baines, who will provide an update on operations during the quarter. I will follow with the financial results, and then we will open the line for your questions.

This morning, both Tidewater Midstream and Tidewater Renewables reported results for the third quarter ended September 30, 2025. A copy of the news releases, financial statements and MD&A may be accessed on SEDAR+ or on their respective company websites.

Before we get started, I'd like to note that today's call is being recorded for the benefit of individual shareholders, the media and other interested parties who may want to review the call at a later time. The recorded call will be available through Cision. Some of the comments made today may be forward-looking in nature and are based on Tidewater's current expectations, judgments and projections. Forward-looking statements we express today are subject to risks and uncertainties, which can cause actual results to differ from expectations.

Further, some of the information provided refers to non-GAAP measures. To know more about these forward-looking statements, non-GAAP measures and risk factors, please see the company's various financial reports, which are available on their respective company websites and on SEDAR+.

I'll now turn the call over to Jeremy.

[Jeremy Baines, executive]

Thanks, Ian, and thanks to everyone for joining us today. During the third quarter, we continued to advance our strategic initiatives, including the acquisition of the Western Pipeline, which successfully closed on September 25. Across our portfolio, we delivered consistent operational performance in our midstream assets and solid financial results at Tidewater Renewables, all while executing planned maintenance and turnarounds to ensure long-term reliability and efficiency.

I'll begin with Tidewater Renewables, followed by Tidewater Midstream, covering regulatory and strategic developments, operational performance and maintenance activities and followed by commercial updates.

Starting with regulatory developments. On September 5, 2025, the government of Canada announced a $370 million biofuels production incentive program to address the economic challenges caused by U.S. subsidies and policies. The incentive program is expected to provide per liter support for qualifying Canadian producers of renewable diesel and biodiesel from January 2026 through December 2027. With the HDRD complex expected to produce between 150 million and 170 million liters annually during this period, Tidewater Renewables is well positioned to benefit once the program is implemented. In addition, the government of Canada also announced its intention to make targeted amendments to the clean fuel regulations to further support Canada's biofuel sector. We understand the government will develop the amendments in consultation with industry stakeholders this fall, and we are actively planning to participate in this process.

Moving to operations at the HDRD complex. Throughput during July and August averaged 2,920 barrels per day or 97% of design capacity prior to the scheduled turnaround in September. The turnaround was originally expected to last 3 weeks, but was extended by 2 weeks due to higher-than-anticipated following in the hydro deoxygenation reactor beds. Following the planned turnaround, there was a 2-week unplanned outage during October due to an equipment anomaly, which was temporarily repaired to resume operations. Throughput has averaged approximately 2,330 barrels per day to date during November with rates expected to return to full capacity in December 2025 after the affected component is reinstalled.

Utilizing the learnings from the first 2 years of operations, including insights gained from this turnaround, we have optimized the turnaround schedule to extend the catalyst life to approximately 2.5 years. This means that the next turnaround at the HDRD complex is planned for the spring of 2028, which allows us to maximize production during 2026 and 2027, while the biofuels production incentive program is in place. And lastly, for renewables, a few comments on commercial progress. We have significantly increased our contracted offtakes, which now cover 100% of forecasted renewable diesel production for the remainder of 2025. This compares to 70% of forecasted production for the second half of 2025 as disclosed in Q2.

Looking ahead to 2026, over 80% of forecasted renewable diesel production is expected to be directed toward renewable diesel sales inclusive of environmental attributes. All of these sales are structured with U.S. import parity pricing benchmarks aligning pricing of prevailing U.S. market values and reducing our exposure to Canadian emission prices. The remaining volumes are expected to be sold into the spot market where current Canadian pricing remains favorable.

Tidewater Midstream regulatory developments and strategic initiatives. Starting with regulatory and strategic developments on November 12, 2025, Tidewater Midstream executed an initiative agreement with the government of British Columbia to provides BC-LCFS credits to support the production of both carbon renewable diesel and renewable gasoline from the hydrotreater coprocessing unit at the Prince George Refinery. These BC-LCFS credits are expected to fund approximately 50% of the cost of renewable feedstocks required to operate the hydrotreater coprocessing unit during 2026 and 2027 at previously achieved rates of 300 barrels per day. In addition, the sale of co-processed, low-carbon transportation fuels into the British Columbia market will generate CFR emission credits and additional BC-LCFS credits for Tidewater Midstream.

On the strategic front, we closed the acquisition of the North segment of Pembina's Western Pipeline System on September 25, 2025. Now that the transaction has closed, our immediate focus is on integration activities and having our team take over operations of the pipeline in November. Once that occurs, we expect to be able to start realizing the expected operational synergies and the $10 million to $15 million of anticipated annual cost savings we announced previously. We also continue to advance our noncore asset sales program. On October 21, the Sylvan Lake gas processing facility was sold for cash proceeds of $5.5 million. We continue to work on further divestiture opportunities, including growing market interest in repurposing energy sites for data center development. We look forward to updating the market as discussions progress.

Next, let's turn to the operations at the Prince George Refinery. Throughput at the Prince George Refinery averaged 10,313 barrels per day in the third quarter of 2025, a 4% increase from Q2 2025, though lower than Q3 2024 due to differences in feedstock composition and operational adjustments. The semiannual heat exchanger cleaning was completed in early October, and throughput levels have since normalized to approximately 12,200 barrels per day. As part of our ongoing maintenance optimization strategy, we have transitioned PGR to a 5-year turnaround cycle with the next major turnaround plan for the second quarter of 2028.

While refined product margins remained under pressure during the third quarter driven by wider wholesale discounts and an oversupply of diesel in Western Canada stemming from U.S. renewable diesel imports and elevated regional refinery utilization, we are encouraged by the stronger crack spreads observed recently. Prince George crack spread averaged $90 during the third quarter, which increased to 93% for October and has been over $100 during November. These improving market conditions are expected to contribute to better realized margins in Q4 and into 2026.

Now I'll move on to our broader midstream operations. At the BRC gas processing facility, throughput averaged 124 million cubic feet per day in the third quarter, up from 95 million cubic feet per day in the second quarter of 2025. As disclosed last quarter, the increase was expected following the repair work completed at Plant 3 in late June. Ram River gas plant remains temporarily curtailed. We have experienced record low natural gas prices during the third quarter and operations have not yet presumed. Once we see natural gas market conditions improve on a substantial sustained basis, combined with the more supportive sulfur markets we are experiencing, Ram River is expected to return to prior throughput levels, enhancing overall midstream gas processing capacity.

Commodity markets in Western Canada remain challenging with low AECO spot prices leading to selective shut-ins. However, we remain optimistic longer term as LNG Canada and other export projects ramp up, supporting higher forward AECO prices and renewed demand for processing capacity. Looking ahead, we remain focused on driving operational excellence, enhancing margins and executing strategic initiatives, including maximizing efficiency at PGR and HDRD complex, strengthening commercial platforms and offtakes, advancing our SAF project while managing capital prudently, progressing noncore asset sales to unlock liquidity and continuing to advocate for a fair regulatory environment. We believe these building blocks position us for both revenue growth and margin expansion during the remainder of 2025 and beyond, ensuring we continue to deliver value for shareholders while advancing our long-term strategy.

With that, I'll now turn it to Ian for the financial review.

[Ian Quartly, executive]

Thanks, Jeremy. I'll begin with Tidewater Renewables financial results, and then we'll discuss Tidewater Midstream's consolidated financial results.

Tidewater Renewables reported a net loss of $1 million during the third quarter of 2025 compared to net income of $13 million for the second quarter of 2025. The decrease in net income is primarily due to 2 noncash items, the first being a significantly smaller unrealized gain on soybean oil derivative contracts in the current period and the second being a loss on the warrant liability revaluation, which resulted from the significant increase to Tidewater Renewables share price during the third quarter of 2025. Adjusted EBITDA was $16.5 million for the third quarter of 2025, a 54% increase over the second quarter of 2025, primarily due to higher player contributions from the equity investment, which totaled $7.9 million during the third quarter.

As Jeremy mentioned previously, we continue to have success selling renewable diesel, inclusive of all the environmental attributes, which we call R100. There are a number of significant advantages to this commercial structure compared to selling the emissions credits separately, which I want to quickly highlight. The first benefit is that R100 sales result in faster cash collection and reduced working capital, as the total cash proceeds from the sale of the diesel and all the environmental attributes are received within a week or 2 of the physical sale. The second benefit is that R100 is priced of highly liquid and observable U.S. benchmark prices. In the future, we may hedge a portion of contracted R100 sales and the corresponding feedstock purchases to effectively lock in the gross margin on contracted sales. And the third benefit is that our customers are used to purchasing under this commercial structure as it mirrors how they purchase the import alternative. As a result, Tidewater Renewables expects to sell over 80% of forecasted 2026 production is R100.

Turning to Tidewater Midstream. The third quarter consolidated net loss attributable to shareholders was $34.1 million compared to a consolidated net loss attributable to shareholders of $16.3 million for the second quarter of 2025. The increase in net loss is primarily due to the unrealized gain on derivative contracts that was recognized in the comparative period. Consolidated adjusted EBITDA was $16.2 million for the third quarter of 2025, consistent with the $16 million reported in the second quarter of 2025. A higher contribution from the equity investment in the third quarter was offset by lower midstream margins resulting from the historically low AECO pricing and higher corporate costs.

On September 30, 2025, with the support of our syndicated lenders, the Tidewater Midstream senior credit facility was amended to waive the requirements to comply with the quarterly financial covenants at September 30, 2025 and December 31, 2025. The amendments provide Tidewater Midstream with added flexibility as we continue to execute ongoing strategic initiatives. And finally, on August 28, 2025, following the special resolution approved by the Tidewater Midstream shareholders at the May 27, 2025 Annual and Special Meeting, Tidewater Midstream completed a share consolidation on a 20-for-1 basis. Proportionate adjustments were also made to the conversion price of the corporation's outstanding convertible unsecured debentures as well as the corporation's LTIP plans.

That concludes our prepared remarks. Chloe, please operate the line for questions.

[Operator]

[Operator Instructions] Our first question comes from the line of Rob Hope from Scotiabank.

[Robert Hope, analyst]

Maybe on the $370 million biofuels program incentive, how have discussions with stakeholders progressed on that? When could we see some additional clarity on that? And is the expectation that it will be in place for Jan '26?

[Jeremy Baines, executive]

Yes. So we are waiting for the final release of the details, but they have clearly stated it will be in place for January 1, 2026. We expect to hear late this year or early in the new year, but government seems very committed to this, and they announced it in the fall economic statement a year ago. And then with the announcement by the Prime Minister, it's all moving ahead. There are -- we are waiting for final details of exactly how it works, but it looks like it's going to be a very good support for the Canadian renewable diesel industry.

[Robert Hope, analyst]

And would you be willing to give an estimate of just assuming it is laid out as planned, how much of a benefit it will be in '26 for LCFS?

[Jeremy Baines, executive]

Yes. We're not 100% -- we haven't seen the final rules and regulations, so we don't know exactly what's included or what's not included. But based on us back calculating into the potential liters of production of renewable diesel and biodiesel that we see that could be in place for this program, our best estimate is it somewhere between $0.15 and $0.21 on per liter.

[Operator]

[Operator Instructions] Our next question comes from the line of Maurice Choy from RBC Capital Markets.

[Maurice Choy, analyst]

Sort of come back to the PGR move to a 5-year turnaround cycle from 4 years previously. Can you speak to that position as well as if there is a trade-off in terms of utilization rate? For example, do you need to run at a lower rate in order to have a longer turnaround cycle. And just more broadly, I think you mentioned in the MD&A that 5 years is well within the industry norms. What was the reason why it was 4 years in the past?

[Jeremy Baines, executive]

Yes, it's a good question. Thanks for the question. It's hard for me to speak to a lot of the past practices. But with advances that are being made in catalyst technology and industry advances. We always are monitoring the performance of these things. And we've seen at many other refineries go to these 5-plus year turnaround cycles, and we've been doing a very heavy risk sort of evaluated determination of is this appropriate for us. We think we can go all the way without seeing impacts to throughput and yield.

So obviously, we're going to monitor performance. We always monitor the performance of our catalysts and so forth as we go, and there's a couple of sort of call it, critical spare pieces of equipment based on what we saw last turnaround that we might look to put on hand just to make sure that if something on that front went wrong, we could quickly address it. So we're very confident that we've done the right risk-based approach that we can make it without impacting throughput yield and that we -- obviously, this extends the -- lowers our maintenance CapEx at the refinery almost 20% over a 5-year cycle. So it's what was previously a 4-year cycle. So it's very meaningful. It is industry -- pretty much industry standard, and we are managing it appropriately.

[Maurice Choy, analyst]

I understand. Maybe as a quick follow-up. So I guess, Jeremy, you're coming up to your 2 years as CEO here. And I wonder whether or not like comments about the past management. Anything that you are now seeing that it's worth changing in terms of whether it's turnaround, whether that's culture, whether it's people, anything of that sort that you want to tackle in your third year?

[Jeremy Baines, executive]

Yes. I mean we've already made a significant amount of changes around people. I believe we made a lot of changes around culture, and we're focusing on -- it's continuing to move that focus on real cash flow generation and efficient and reliable operations at our facilities, making sure we're doing the appropriate risk things and coring up our assets to make sure that all the assets are actually generating an appropriate return or that we're turning them into cash.

So it continues. We've done -- when you start looking at the long list of changes we've made in, I guess, it's almost 2 years, maybe call it, whatever, 19 or 20 months that we're at now. It's a continuation of that program. There were a lot of things that needed to be changed, and we've made a lot of progress, and we're going to continue that path.

[Maurice Choy, analyst]

Understood. And if I could finish off with -- I think, Ian, you made a comment about the benefits of selling your production as R100. Can I ask what was the obstacle from selling this as R100 in the past that perhaps has changed to allow you to do so now? Or was it a strategy decision not to do so in the past?

[Ian Quartly, executive]

Yes, Maurice. The reason we didn't previously sell R100 is we had the contract with Tidewater Midstream to sell essentially all the LCFS credits produced from July 2024 to March 2025 under the transaction that was completed kind of mid-2024. So we couldn't produce a fully loaded barrel. So that ended in April, and we essentially transitioned to R100 sales from that point forward.

[Jeremy Baines, executive]

And just one other piece, I guess, to add to Ian. The change in the long Canadian renewable mandate made it a little bit easier to do that as well. But it's been -- it's extremely helpful to the business and to keep sustainable reliable cash flow throughout the year with a quick cash level.

[Operator]

There are no questions at this time. I would now like to turn the conference back to Mr. Quartly. Please go ahead.

[Ian Quartly, executive]

Thanks, everyone, for joining the call. The team is available to address any outstanding items with our contact information at the bottom of each company's press release. Thank you.

[Operator]

This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a wonderful day.