Good morning, ladies and gentlemen, and welcome to the Tidewater Renewables Q1 Financial Results Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Friday, May 12, 2023. I'd now like to turn the conference over to Ray Kwan. Please go ahead.
Thank you. Good morning, everyone. On the call with me today is Robert Colcleugh, Tidewater Renewables Chairman and Interim CEO. Brian Moran, Chief Legal Officer. Before we get started, I would 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. A recording of today's conference call will be available through Cision. This morning, we reported results for the three months ended March 31st, 2023. A copy of our news release, financial statements, and MD&A may be accessed on SEDAR or our website. Before passing the call over to Rob, I'll remind you that 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 and non-GAAP measures, please see the company's various financial reports, which are available on our website and on SEDAR. With that, I'll pass it off to Rob to discuss some highlights from the quarter.
Thanks, Ray. Good morning and thank you for joining our Q1 2023 conference call. Tidewater Renewables top priority continues to be the safe and successful commissioning and startup of Canada's first standalone renewable diesel facility. Tidewater Renewables is proud to have sourced an additional CAD 93.2 million worth of liquidity in the last few months, which should provide us with ample liquidity to finish our commissioning of the HDRD Complex and support our growth projects. This support comes in the form of CAD 43 million of newly issued capital emission credits, excuse me, and CAD 50 million of additional debt capacity from our existing lenders. The support received from our current capital providers and the government's been fundamental to the success of the HDRD Complex.
This project will provide significant value to our stakeholders while reducing the carbon intensity of fuels used in British Columbia and Canada. The HDRD Complex is now over 95% complete and is progressing as expected with no change to the previously announced gross capital costs of CAD 342 million. Commissioning operations are progressing on several units, with the final completion and startup expected to begin by the end of Q2. The HDRD Project continues to be a leader in safety performance with zero lost time injuries throughout the life of the project to date. Finally of note, Tidewater Renewables recently published our inaugural ESG report. The report highlights the corporation's commitment to responsible energy development, its approach to sustainability, recent accomplishments, and other materials that'll help drive the success of Tidewater Renewables' long-term ESG goals.
The report's available on the company's website, and I would encourage you to take a look. I'll now turn the call over to Tidewater's Chief Financial Officer, Ray Kwan, to walk through our financial results.
Thanks, Rob. Tidewater Renewables reported first quarter adjusted EBITDA of CAD 12.6 million, in line with the same period last year. For distributable cash flow, Tidewater generated CAD 5.3 million, compared to CAD 7.9 million in the same period last year. Our quarterly performance was underpinned by our base take-or-pay contracts with Tidewater Midstream, as well as continued realized hedging gains. This was, however, offset by lower product pricing for the canola and FCC co-processing units. Total capital expenditures for the first quarter of 2023 were CAD 81.6 million, compared to CAD 47.4 million in the same period last year. Q1 capital relates largely to the construction of the HDRD Complex.
These expenditures were partially offset by funds received from the sale of BCLCFS credits awarded by the BC government for achieving milestones under the Renewable Diesel Project Part three Agreement, which totaled CAD 23.3 million in the first quarter. Regarding Tidewater Renewables' financial position, we ended the quarter with total net debt of CAD 278.6 million. As mentioned, Tidewater was able to secure additional capital emission credits of CAD 43 million, which were sold in Q2. We also expect to monetize CAD 29.8 million worth of credits in Q3, followed by CAD 10.6 million in 2024. Note that these are all capital emission credits and do not include any of the credits that will be generated via the production of renewable diesel.
As previously announced, in 2022, we have only forward sold less than 7% of our operating emission credits in 2024 and 2025. We also amended our senior credit facility and AIMCo Facility to provide a temporary increase of $25 million each for a combined total of $50 million. These amounts are repayable in variable quarterly installments based on the company's cash flow following the commissioning of the HDRD Complex. These amendments also waive the financial covenants until and including September 30th, 2023. For the HDRD Complex, our startup plan involves a gradual and measured increase in production, translating to a 75%-80% utilization rate in the second half of 2023. Based on this utilization, second half 2023 corporate adjusted EBITDA guidance is expected to range between $50 million-$60 million.
At this point, I will turn the call back to Rob to wrap things up.
Thanks, Ray. As mentioned at the start of the call, my focus is ensuring that Tidewater Renewables successfully commissions the HDRD Complex, creating value for our shareholders and establishing a platform for future growth. The HDRD's complexes, EBITDA during the second half of 2023 will represent a step change in our business profile and should create significant shareholder value. With that, I'll ask the operator to open the call to Q&A.
Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press star followed by the number 1 on your touch tone phone. You will hear a 3-tone prompt acknowledging your request. If you would like to withdraw your request, please press the star followed by the number 2. If you are using a speaker phone, please lift the handset before pressing any keys. One moment please for your first question. We have our first question with Robert Kwan from RBC Capital Markets. Please go ahead.
Great. Thank you. Morning. Just, you talked about post HDRD commissioning and the quote being strengthening your financial position and repaying debt. I'm just wondering what specifically, does that mean to you in terms of Canadian dollars, and credit metrics?
I mean, I think our primary goal over the near term, like we said before, is to strengthen Tidewater Renewables financial position. I think where we wanna be, I think overall is probably half the amount of leverage on our balance sheet that we wanna be over the next, call it 24 months here. I think the goal here for the next 12 months will be debt repayment. But also part of that is to move forward on some of that development of our RNG facility.
Okay. Ray, just so I'm clear, when you say half the amount of leverage, are you talking about half the amount of debt?
Yes.
-ends up being at the end. Okay. Then there's also specific mention of the remainder just working or focusing on that through the remainder of 2023. Does that mean based on your projections, you expect to achieve those targets by year end?
Yeah. Like, in terms of our financial position, like I think post HDRD commissioning, I mean, like again, our single goal is to focus on strengthening the balance sheet. It will be debt repayment here over the back half of this year. I think 2024 we'll be evaluating our 2024 budget in terms of what we're looking to spend in terms of future growth projects. You know, as we stand today, I think our near term goal will be debt repayment.
Right. Just to be clear, though, but you expect based on your budget, by the end of 2023, you'll have achieved that leverage reduction that you want to be and that 2024 will be kind of focusing more on strategic initiatives rather than financial?
Yeah. I think by the end of this year, I think we're forecasting to be net debt of around CAD 300 million total. I think we'd like to reduce that by half over the next 12 months thereafter.
Oh, okay. Okay. Just last, in March, Tidewater Midstream just talked about needing to take actions to surface value. I'm just wondering, is that evaluation process actively involving the participation of Tidewater Renewables, or is that something that's just happening away from you and whatever they end up deciding, may or may not impact you, but you're not involved?
Yeah. Hey, Robert, it's Rob here. It is specific to Tidewater Midstream, I don't foresee any impact on renewables.
Okay. That's great. Thank you very much.
Thank you. Next question we have Nick Boychuk with Cormark Securities. Please go ahead.
Thanks. Good afternoon, guys.
Yeah.
Can we get an update please on the Unifiner replacement process at PGR for the co-processing and FCC?
Sure. like right now for the Unifiner as well as the FCC, we are moving in terms of installing pumps and as well as heat exchangers on both the canola co-processing as well as new nozzles on the FCC co-processing. You know, from my understanding, the turnaround's going well and the installation of these items are going well as well too.
The catalyst has been replaced, should be ready to roll. As we've said in the midstream conference or midstream press release, I should say, the turnaround's gone as expected. No material found work.
Okay, awesome. Looking beyond HDRD, I was wondering if we could get a bit of status update on High River RNG as well. Curious where it is in the permitting process and also what your thoughts are on construction timelines and ultimately potentially product COD?
Sure. We, you know, continue to work through the regulatory process. Right now we're answering SIRs and those should be turned around in mid-June. You know, it's really up to the Alberta government, whether we've got more SIRs after that or whether it rolls right into an approval process. We obviously will be laying a fair bit of cement, so that will need to take place kind of at this time of year. We have been, I think, fairly clear before that we wouldn't start construction on it until next spring. That's still our timeline as it stands.
Okay. Great. That makes sense. Beyond High River, last one would be on how you're prioritizing future growth projects. What are you guys seeing in terms of different types of fuels? If there's a, I guess, an option for you guys to start to do some M&A, if some of those valuations are coming in a little bit more attractively now.
Yeah, we're continuing. We're evaluating things now. As you know it takes quite a bit of time to get any kind of deal over the line. You know, I think it's important to keep our pipeline pretty active. We've had a couple of interesting opportunities that we've taken a look at. We've got a couple of organic opportunities that we, you know, continue to assess as well in terms of costs and offtake and things like that. We've also, you know, on the larger side of things, we're just starting to investigate some SAF opportunities as well. Again, very early days on that one. But, you know, we have funding in place to for us to investigate that kind of a project.
Okay. Appreciate the time. Thanks.
Thanks, Nick.
Thank you again, ladies and gentlemen. If you wish to ask a question, please press star followed by the number one. Next question we have Robert Catellier we have CIBC.
Thank you. Good morning, everyone. I just want to follow up on the leverage questions that were being asked at the beginning. You know, in additional to your financial position, is there a key operating marker you need to see out of HDRD before undertaking new material, new capital projects? For example, does it have to be running for six, 12 months, or is there any sort of operating milestones you're looking for as well?
Well, I mean, I guess two different questions. One, we're gonna be looking to see, you know, what our capacity utilization is once we get it up and running. You know, I don't think it's gonna take six months. Once, once it's up and running and, you know, we get some time under our belt, say a month, we should know what that is. It, you know, it'll be fairly instructive in terms of our cash flow to know whether we're, you know, whether we're hitting the 3,000 barrel a day, whether we're at, you know, 2,700, 2,800. You know, that'll be instructive. It's not gonna delay any of the, you know, the next project that we've got is the RNG project in High River, it's not gonna delay that.
We're moving forward with that process, so.
Okay. Thanks for that. Just wanna make sure I have an understanding of the completion date. You know, reading the press release, it looks like it may have slipped from April to June. Just wanna make sure I saw that correctly. That is in fact a slip on the completion date. In light of that, what's being done to maintain the cost and the EBITDA guidance if in fact it has slipped?
Sure. I mean, I don't... You know, we may be a little bit delayed. It's not from April, it would have been from May into June. We've got a couple of gating items that will really determine exactly which week it starts up. You know, we've got a very fairly rigorous commissioning process. We've talked to a lot of the facilities that have started up, especially ones that have started up with Haldor Topsoe catalysts. We think we've taken the best operating startup procedures from each of those other facilities, and we're gonna follow those. You know, whether things are, you know, if it's middle of June, end of June, you know, we're not, we're not gonna be fussed by a week here or there.
We're gonna be very rigorous in the way we start this up because it's gonna have zero impact on value whether a week earlier or later. Robert, was there another question that I missed?
No, I think you answered it. Like, I was just curious how you can maintain cost if it slipped, but what you're telling me is it's a question of a week or two. It's not the slip that I thought may have been. Okay.
No. Yeah, I mean, there's no two ways about it. Time is money, as they say. You know, any kind of slipping does have some impact, but it's not impacting us that much. You know, Basically, we've got two things we're waiting on. We're commissioning as we go. Most units have either been handed over to commissioning or are actually in the final walkdowns before handing it over to commissioning. That's going on independently. Then, you know, we've got a burner that's being replaced. Then there's a little bit of welding that's being done. Most of the things are on site.
Any kind of delays, if we're talking a week or two, they don't have a direct impact on costs and we're not seeing that, affecting us.
Okay. Fantastic. Last one for me is it does appear that feedstock costs have dropped here. I'm curious how that impacts your feedstock acquisition strategy and also the, how you might look at hedging.
Yeah. They have dropped. I mean, we come from an oil and gas environment, and we're used to volatility, but some of these ag products have some good volatility to them too. We've seen... You know, that's obviously impacted our hedge that we've got on right now. We've got, you know, 40%-50% of our canola purchases hedged. Once we get into the startup phase, we may be looking at adding a little bit more because it is quite attractive right here, and obviously plays well to our economics in terms of our feedstock against an output on the diesel side. Yeah, I don't... We will continue to look at hedging opportunities. Very importantly, we're continuing to look at other types of feedstock as well.
As you know, we've got our used cooking oil business that collects product UCO right now. We've also got a line on some pretty interesting feedstocks that have very positive impacts in our CI. Those types of things will be, as mentioned before, we'll be feathering those into the system as we're comfortable in, hopefully later in the summer. In the meantime, yeah, we're pretty happy to see canola prices where they are, and we'll be, you know, reviewing just how much we want to hedge going forward.
Okay. That's it for me. Thank you.
Thanks.
Thank you. The next question comes from the line of [Jacob]Devin Sills with BMO Capital Markets. Go ahead.
Yeah. Hi, guys. Just with regards to the plant turnaround at TGR, what should we be modeling for a decrease from the base business and co-processing activities during the quarter year?
Yeah. You should model zero EBITDA for both the canola co-processing and the FCC co-processing. Yeah, we're not building any volumes associated with that. You know, our still take-or-pay asset EBITDA is still $10 million a quarter, equating to $40 million for the year. I would assume probably $10 million at least from an asset EBITDA for our take-or-pays.
Okay. Sorry. I thought the assets were shut down for about half the quarter. Is that, is that not correct?
Yeah. Yeah. We just assumed in our model, just effectively it's not contributing for the entire quarter here.
Okay. That's helpful. Thanks. That's all for me.
Next question we have Nate Heywood with ATB Capital.
Hey there, guys. Thanks for taking my questions. You talked a little bit about de-risking the feedstocks. I just want to switch to the other side here, looking at the exposure on BC LCFS credit prices. Obviously, we've seen some strength, even in the last month, prices around CAD 475. I'm just wondering what the forward sale appetite is from some of the, some of the offtakers you're talking to, and as you look to stabilize that exposure through 2024 and 2025. And if you have a target, in mind, that'd be great as well.
Sure. Yeah, we are continuing to see strength in LCFS credits and BC LCFS credits. We're also seeing strength even though it's sort of pre-issuance on the CFR credits as well. It's a very good environment on that side of things. You know, we are active in that market. We're not actively looking to forward sell. We have had a bunch of questions about how much of our production credits we've forward sold, and which, you know, we've. It's around 5%. Really just to test the market. We haven't entered into that forward forward sale of production credits. I don't think that we're particularly interested in doing so. We'll take them as they come. You know, we're fairly bullish on the credits situation.
We're one of a small number of players that are actually generating credits in any material way. I think it's the winds at our backs a little bit on that side of things.
Perfect. I appreciate the color there. Just finally on, you know, looking at the capital allocation, you guys are still looking to potentially deploy more capital towards renewable natural gas. I'm just wondering if you're seeing much in terms of the economics, changing, you know, seeing the inflationary environment and the weaker localized natural gas prices.
Well, keep in mind that our, with regard to gas prices, we've got a fixed price, which is offtake through FortisBC, which we've announced. We're not impacted by variability on natural gas prices with regard to the RNG project. I don't think we're any different than anybody else in the construction world right now. We are seeing a much reduced inflationary environment, we're pretty comfortable that we're still, you know, in the same ballpark as we were before in terms of the capital costs. As you know, the RNG project is vastly simpler construction project than, you know, an HDRD. It should be fairly straightforward.
I guess the only other thing I'd like to reference is, you know, I think you want to see our disclosures in terms of our grants. We've been, you know, I think we're on a pretty steady track of collecting grants, and I don't think you'll see a significant outlay of capital required to come from Tidewater Renewables to get that project up and going, thanks to the grants as well as quite a bit of interest on the project finance side of things.
All right. Thanks very much. I'll turn it back.
There are no further questions at this time. Rob, do you have any closing remarks?
No. Thank you for joining us. As always, Ray and I are available for any questions or discussions. Please feel free to reach out. Thanks, operator. It's all yours.
You're welcome. Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your line.