Good afternoon. My name is Catherine, and I'll be your conference operator today. At this time, I would like to welcome everyone to the Tidewater Midstream and Infrastructure Ltd. First Quarter 2021 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question at any time, please press the pound key. Thank you. Mr. Joel Vorra, you may begin your conference.
Thank you, thanks, everybody, for joining the call today. As usual, before passing it on to Joel MacLeod for a review of the quarterly highlights, just want to remind everyone that some of the comments made on today's call are forward-looking in nature and based on our current expectations, estimates, and judgments. Forward-looking statements we express or imply today are subject to risks and uncertainties, which can cause actual results to differ from expectations. For further information on forward-looking information and some of the non-GAAP measures we refer to, please view our website at tidewatermidstream.com or our various filings on SEDAR. With that, I'll pass it over to Joel MacLeod for a review of our first quarter 2021 highlights.
Thanks, Joel. Good morning, everyone. Thank you for joining our Q1 2021 conference call. We are proud to have delivered eight consecutive quarters of record per share adjusted EBITDA growth and delivered CAD 51 million of adjusted EBITDA in Q1 2021. This represents a 23% increase in per share adjusted EBITDA year-over-year. We continue to see growth into 2021 with producer activity, increased volumes, increased refined product demand, crack spreads, and our canola co-processing project coming online in Q4. Our number one priority remains de-leveraging and free cash flow generation, and we are confident in our ability to achieve our target of 3.25x-3.5 x debt to EBITDA with the closing of the Pioneer Pipeline in Q2.
We are also confident we will be able to continue to grow per share distributable cash flow throughout 2021 as we continue to execute and grow a significant inventory of high rate of return capital projects with two to three-year payouts. With the pandemic, we did make the decision to front-end load our growth capital, and we did spend CAD 16 million of growth capital in Q1 2021, and this is approximately 40%-50% of our total planned growth capital for full year 2021. This included the completion of the majority of the work related to our canola co-processing and a portion of our tank maintenance. We do continue to build a significant inventory of high rate of return projects and continue to evaluate the deployment of growth capital into these projects into 2022.
One of the larger projects we continue to evaluate relates to our renewables initiatives and our renewable diesel and renewable hydrogen project. As an update to our renewable initiatives, we continue to see material interest from external capital providers to develop various renewable energy and clean fuels projects. Tidewater has also had significant support from the B.C., Alberta, and federal governments on our renewable initiatives. With the increasing BC LCFS prices and the commencement of the Canadian Clean Fuel Standard in 2022-2023, the economics of these projects continue to display attractive returns and complement our asset base. We have a vital role to play in the long-term renewable energy transition in Canada, and we currently are developing clean fuels strategies through existing hydrogen and carbon capture assets and our ability to blend ethanol, renewable diesel, and our current co-processing project.
We are also evaluating opportunities in various renewable energy initiatives, including renewable diesel, co-processing renewable hydrogen, blue hydrogen, renewable natural gas, carbon capture, and other projects. Our shareholders have our commitment that we will not raise equity into the mothership of Tidewater Midstream to fund our highly economic renewable diesel and renewable hydrogen project, and we are currently focused on varied options that would not increase our leverage metrics. Feedback from the majority of capital providers is they have not seen a renewables project globally with approximately 40% of the capital provided by the government and with a payout of approximately two years or less.
International investors are very interested in Tidewater's carbon capture and gas storage facilities, where over five of our facilities are sequestering small to large amounts of CO2 and GHG today, and also a large natural gas storage network that is positioned very well to take advantage of various renewables opportunities. Our field team of over 250 staff are our greatest asset and have been operating both hydrogen and carbon capture assets at multiple Tidewater facilities for over 30 years.
We are excited to continue to educate global investors in the capabilities that Canada, Alberta, and Tidewater has to be a leader in carbon capture, the hydrogen economy, RNG, clean fuels, and various other renewables initiatives. We do expect to see continued government support on all of these fronts as the provincial and federal governments do see Tidewater as a leader in carbon capture, renewable diesel, and our related renewable clean fuels initiatives. We wish to thank the B.C. government, the Alberta government, and the Canadian government for their continued support in reducing the carbon intensity of clean fuels across Canada. Back to our business and our Q1. Quick update on Pipestone. The Pipestone plant processed an average volume of 83 million cu ft a day in the first quarter of 2021, a 32% increase from Q1 2020 and an increase of 13% from Q4 2020.
Facility availability for the quarter averaged 85%, an increase of 8% from Q4 2020. Plant throughput was strong in January and March, averaging approximately 90 million cu ft a day, but was affected by below-average colder weather conditions in February. The Pipestone gas plant is fully contracted with over 80% committed capacity on take-or-pay arrangements. Pipestone has seen record performance over the last 60 days, where we have amended our facility license to 110 million cu ft a day and have seen multiple days of throughput over 100 million cu ft a day. When we kicked the project off of Pipestone Montney back in 2016, we would have never expected to see throughput over our initial capacity. A huge thank you to our entire team for their incredible execution. Furthermore, we are evaluating a near-term small expansion for minimal capital with a sub two-year payout.
We do also want to remind the market that our Pipestone complex did require two of the longest horizontal carbon capture wells in Canada, and we have sequestered millions of cubic feet of GHG and CO2 since bringing the plant online in 2019, and is a great recent example of how Tidewater, Alberta, and Canada are leaders in carbon capture and reducing GHG emissions globally. With producers continuing to optimize well design and related capital efficiencies, accompanied with strong commodity prices, we continue to see Pipestone as one of the most economic plays within North America and do expect to see continued volume growth in the area. We continue to evaluate both large and small scale expansion opportunities at Pipestone. Over to Pioneer. Pioneer Pipeline continues to operate incredibly well.
Closing of Pioneer remains top priority, where we do expect Pioneer to close in Q2 in the next 30-45 days. The closing of Pioneer will have an immediate impact in driving our debt to EBITDA to approximately 3.5 x. Over to Prince George. Prince George, our refinery, had another strong quarter. Total throughput exceeded the refinery's nameplate capacity at approximately 12,095 barrels a day, consistent with the fourth quarter of 2020 and a 4% higher than the first quarter of 2020. Even with B.C. and Alberta in lockdown, crack spreads continue to be top decile in North America and continue to demonstrate strong free cash flow generation. Demand for diesel continues to exceed diesel production as a result of large infrastructure projects including Coastal GasLink, Site C Dam, LNG Canada, and Trans Mountain Expansion.
Lumber and mining metals within B.C. continues to see record commodity prices and activity is likely to continue and/or increase, which is very positive for our Prince George refinery. Over to Brazeau River. Our Brazeau River gas processing facility and fractionation facility. Throughput at Brazeau gas processing facility averaged 125 million cu ft a day, resulting in the highest raw gas volume since 2018. Strong AECO prices in the past six months have increased producer activity near Brazeau, and we continue to look for opportunities to increase third-party plant throughput. We continue to work diligently with producers to improve netbacks by fully utilizing Brazeau's related capabilities. Also at Brazeau, our fractionation facility saw increased throughput by about 450 barrels a day. As we move over to ESG, Tidewater remains committed to our ESG initiatives and continues to be seen as a leader in clean fuels.
We are also happy to announce our partnership with NGIF, an industry-led partnership focused on advancing technologies and solutions that enhance the environmental and economic performance of the natural gas sector. This partnership will invest in clean tech enterprises across the value chain from production, transmission, distribution, storage, and end-use applications, as well as innovations leading to the expanded production of emerging fuels like renewable natural gas and hydrogen. We look forward to working with our six industry partners in ARC Resources, ATCO, Birchcliff, FortisBC, TC Energy, and Tourmaline. To reiterate, Q1 was an eighth consecutive record per-share adjusted EBITDA quarter, where the remainder of 2021 continues to look strong and we plan to continue our momentum.
Our growth capital in 2021 was front-end loaded, where we have now deployed 40%-50% of our current board-approved growth capital for 2021, but do want all to be aware we do have a growing inventory of two to three-year payout projects and will continue to evaluate these projects. We feel we are positioned tremendously well to be a leader in clean fuels across Canada and expect to see continued government support in our various clean fuel initiatives. We have numerous options to fund our renewable diesel, renewable hydrogen project, and we remain confident in our ability to fund the project and expect to have an update in the next 60 days.
Feedback from global institutional investors has been that our renewable diesel, renewable hydrogen project is one of the most attractive renewable projects globally, given CAD 100 million of government support, being in the only province in Canada with LCFS credits, and with the new evolving Canadian Clean Fuel Standard credits coming into effect in 2023, and Prince George having top diesel prices in North America. I do want to thank our staff, board, shareholders, customers, credit syndicate partners, and all stakeholders for all your support. We look forward to continue to deliver strong results into the remainder of 2021, and we know it has been a long road for our shareholders, stakeholders over the past six years, and are confident 2021 will be a year where we generate material value for Tidewater shareholders.
I'll pass it back over to Mr. Vorra, and he'll walk you through the financial highlights of our Q1.
Thanks, Joel. Good summary. Everyone, I'll walk through some of the financial highlights for the quarter, and Joel touched on some of these already. With the continued recovery in commodity prices, we saw an increase in revenue up to CAD 360 million for the quarter, representing approximately 30% increase from the prior quarter, primarily driven again by recovery in commodity prices, which has positively impacted throughput at various assets. Our gross operating margin, adjusted for hedge gains was approximately CAD 55 million, which is a 6% increase over the fourth quarter, or a CAD 3 million increase over the fourth quarter in 2020. EBITDA, as Joel mentioned, a record quarter for us, and back to where we felt we should have been and would have been pre-COVID, to pre-COVID levels, which is CAD 51 million for the first quarter in 2021. Again, a strong record quarter for Tidewater.
That's primarily driven by strong crack spreads and throughput at the Prince George refinery. As well, which Joel touched on, throughput at the Pipestone gas plant. We saw our best quarter ever and continue to see record throughput at the Pipestone gas plant. Our payout ratio, again, conservative payout ratio, around 20% payout ratio with distributable cash flow of approximately CAD 17 million, which again, would be a record and continue to focus on that metric and one of our key metrics that we evaluate and review as a company. Capital. Joel mentioned accelerated capital growth in the first quarter, have spent approximately 40%-50% of growth capital. We do expect to remain in range of maintenance capital guidance of around CAD 20 million-CAD 25 million for the year, but have accelerated that growth piece.
Capital in line with what we would expect, and overall, a strong quarter seeing throughputs at our assets continue to increase, and increased producer activity and interest in our infrastructure, and then again, strong refinery throughput and crack spreads. I think those are the main financial pieces, and Joel touched on a few of them. With that, I think we can open it up to questions.
Thanks, Joel.
Our first question comes from the line of Robert Kwan.
Great, good morning. If I can start with the renewable diesel project, and it sounds like you've narrowed some of the options there and just wanted to clarify first on the statement of no additional leverage. Are you looking now at investments where someone will take on all of the CapEx and there will be no additional debt at all at Tidewater, or are you looking at that more on a pro forma basis that the leverage metric won't move, once you get EBITDA online?
No problem, Robert. Our goal is to ensure our leverage metrics or our debt to EBITDA, that does not get worse, and to see the amount of interest on either project-level financing or other options, where it's an equity type of investment, either at a project level or other potential options, has been, I think, a big learning for us, and we're excited to continue to explore that. As I mentioned, we need another month or two to work through our options, but to date, the response has exceeded our expectations, and we continue to work through those options. Today, we're focused on those versus even adding a small amount of leverage within Tidewater Midstream, but nice to have multiple options. Again, we still need a couple more months of work before we come back with an update.
Got it. I think previously, and I apologize if you did mention it on this call, but previously, I think you talked about another goalpost being majority ownership and operatorship. Is that still your targets?
Yep, absolutely. We want to operate, the government wants to see us operate, and today would be confident our options would lead us to be the operator, and to your point, have greater than 50% ownership.
The last one here on renewable diesel. The CAD 75 million of EBITDA that you previously put forward, I believe, did not include federal credits. What would you see that federal credits adding to that number?
Yeah, Robert. It's driven by carbon intensity. I think we're fairly confident in our carbon intensity on our feedstock and our related processes. The B.C. government's been heavily involved. Assuming we achieve that 15 to 20 carbon intensity component, the question would be how would you value the CFS credits? We haven't, to your point. In that CAD 75 million, we have not included any value for Canadian Clean Fuel Standard credits. In our discussions over the past couple of months with experts, energy funds, experts on Canadian, the federal government, continued weekly discussions, and they've been extremely helpful. The view is that those credits should trade at a minimum of CAD 50-ish in 2023, CAD 50 a credit. Some would say they should trade closer to CAD 100 in year one or potentially higher.
You'll see there's a cap of CAD 300 a credit, so we wouldn't want to be overly promotional. If you said use the base case, conservative case of CAD 50 a credit, that would add CAD 10 million to CAD 20 million of EBITDA to the project.
If I can just finish with how EBITDA is mapping out for 2021. On the positive side, you've got a lot of small capital projects, quick returns or high returns, but it's kind of opaque with respect to specifics. What do you see that contributing as you map through the year and then offsetting that with you've got the turnaround of the PGR in Q2, but as well, lost Pioneer EBITDA. I guess using Q1 actual results as a marker, how do you see the rest of the year mapping out?
Good question. Just a few points for clarification, one being turnaround in Q2. It's just a curtailment. We will curtail to roughly 9,000, 10,000 barrels a day for a week, potentially two, to clean some of our exchangers, but it's not a turnaround or a shutdown. The impact, we would say worst case, is 5-ish% to Prince George's EBITDA generation. With crack spreads moving up, there could potentially be no impact to Q2. That's just one quick clarification point. Then also on Pioneer. Pioneer, as we close, we will have reduced tolls as part of the arrangement there. Today with frac spreads, NGL pricing, which I know you understand, I just want to make sure for others on the call, NGL pricing through to gas price has improved.
Today, we initially said the majority of our lost EBITDA related to the Pioneer sale would be recovered by those reduced tolls. Today, we would probably be able to relay a message of 100% of the lost EBITDA is made up by the related frac spread. Nice to have, I would say, a win there. As to your question, how does the rest of the year look? We're trying to be conservative, but we're seeing record gas volumes at Pipestone and also Brazeau, and then crack spreads continue to move out. We do feel into Q3, Q4, especially with canola co-processing coming online, you will see an uptick from our Q1.
Would hate to say we know every single quarter is going to be an uptick, we would expect the average of 2021 to be higher than our CAD 51 million a quarter that we just delivered in Q1, just to try and give some perspective. There's definitely upside to that. I think we're all just hesitant given how well things have gone. Producer activity, gas prices, AECO at CAD 2.95, oil activity. Things just feel a little too good to be true, we'll definitely take it as it's been a tough couple of years.
That's great color. Thank you very much.
Thanks, Robert.
Our next question comes from the line of Cole Pereira.
Good morning, everyone. The renewable diesel facility is kind of the centerpiece of your clean fuel strategy. I'm just wondering if you can add some color on how you're thinking about the other options available, hydrogen, RNG, maybe just in terms of timing and which projects you might view as more attractive.
Yep, good question, Cole. We have to stay focused on, I think on our one initial renewables project, which is renewable diesel, renewable hydrogen. As we are seen as to have hydrogen production for 30+ years at Prince George, to see the Alberta government, the federal government viewing us as a leader on the hydrogen side, to have gas storage assets, and us being definitely a top five gas storage player in Western Canada on the RNG side, we're definitely starting to get more and more involved there. Again, we need to stay focused. Number one focus, renewable diesel, renewable hydrogen project, definitely opportunities without even capital when we look at our gas storage assets would be a good example. Some of that's competitive and as all, I think, understand on the call, it is highly competitive.
Some of those pieces we're trying to keep in our back pocket and progress, especially those that require no capital and generate free cash flow. I would say multiple opportunities across the renewables side, but we have to stay focused on the one large project, and confident we will be able to execute on a financing plan, and we're excited to bring that forward here in the next couple of months.
Okay. Yeah, got it. That's helpful. Thanks. As we think about the existing 2021 growth program, it sounds like it's CAD 30 million to CAD 40 million. Can you just give some more color on what some of these projects are other than the canola co-processing?
Yep, no problem. Canola co-processing would be our largest project. We have some debottlenecks. We don't require an outage. Water disposal, there's a potential to add some water disposal related EBITDA there with an additional tank. As we go through other pieces, I think some of them we'd like to keep confidential, as some of our ideas are competitive, but there are a couple debottlenecks at Prince George. We'd prefer not to get into the detail. Adding unifiner capacity would be one, and hydrotreating capacity, with crack spreads as wide as they are and generally debottlenecking opportunities across our assets, Pipestone, Brazeau River, and at Prince George.
Okay. Got it. That is helpful. Are you able to say at all how big the Pipestone expansion you are thinking about would be, and if it would be at an existing counterparty at the facility now?
Today our plan is to start. We've amended our license to 110 million cu ft a day. It's been incredible to see us flow 102 million cu ft , 105 million cu ft . Today our focus is, what's the capital going to be to get us to 110 million cu ft ? There's potential it's minimal, which is, I think, great for our shareholders. That's where our focus is today. With commodity prices moving up, activity, someone showing the economics in the area that it has, we are starting to have inbounds and discussions on, I would say, a 50 million cu ft a day expansion. That can all change. Today the focus is more on the smaller, higher rate of return expansion into the end of the year.
Okay, got it. That's all for me, thanks. I'll turn it back.
Thanks, Cole.
Your next question comes from the line of Rob Hope.
Hello, everyone. I just want to get a sense of how you're thinking about capital allocation. We have a balance sheet that should be improving here in the next little while. You have a large potential renewable diesel facility in front of you. Do you think that handicaps you from pursuing something like a larger Pipestone expansion or something on the carbon capture storage, or I guess the crux of the question is, do you have to finish up the renewable diesel project first before you tackle some of these larger projects, or can you sequence them at the same time?
Yeah. Great question, Rob. I think we want to stay focused, but at the same time, if we had customer support from investment-grade customers on a Pipestone for an expansion, we are not there today, we would definitely move that forward and look at financing options. The good news is there's a lot of external capital that would love to be involved in infrastructure with contracted cash flow in an area like Pipestone, where we don't necessarily have to add leverage, we don't necessarily have to raise equity within Tidewater Midstream. We have to work through those options. On a Pipestone expansion, we're not there today. Step one is getting customer support, but great to be in one of the hottest areas in Western Canada and to see how well the team's performed. Reputation as an operator is definitely top tier, which is great.
At the same time, we do have to set our priorities, and we are definitely focused today on getting a clear, definitive financing plan on renewable diesel, renewable hydrogen, and confident we will get there here in the next 60 days.
All right, great. Just as a follow-up question, the gasoline and diesel market in North America has been a little choppy recently. Parkland's saying they're having tough time getting trucks, and then you had Colonial there as well. As we look ahead to Q2, any headwinds or tailwinds in terms of bargaining opportunities as well as your ability to place volumes?
I think that's historically where we've shined over the past even 10 years and in previous entities, is when there are dislocations to have rail facilities, large rail car fleet, our relationship with CN, relationship with end buyers, be it refiners, propane consumers, butane consumers, that's where our expertise and I believe we're continuing to be seen as a leader there. I would say there's definitely more opportunity should Colonial continue to experience issues or Line 5 be shut in to have rail facilities and rail cars that are ready to move. I think it's a huge potential win for us. At the same time, we're not forecasting or planning for it, but as our customers know, one of the biggest value adds that we can provide is markets when there's apportionment or when dislocations present themselves.
Again, not forecasting anything, but great to have large rail facilities that are ready to move should the opportunity present themselves.
Thank you.
Thanks, Rob.
Again, if you would like to ask a question, please press star, then the number one on your telephone keypad. Again, that is star followed by the number one. Our next question comes from the line of Nate Heywood.
Hey there, guys. Just a quick question for me. You're talking a lot about capital allocation and pretty attractive projects that you're looking at here. Just wondering if there's any capital recycling initiatives that you're looking at, potentially divesting some assets or anything along those lines that you've identified.
Nate, it's a good question. We've, I think, monetized the majority of our non-core pieces, but even through some of our acquisitions, we have undeveloped lands, and even more recently, it's not material, but we did sell some of our undeveloped lands to existing customers in the Pipestone area. Absolutely. They're small. They're not material numbers, but we continue to evaluate those options, and as I hope everyone knows, we're always open for business. If there's a non-core asset or a small gas plant where there's interest, we're more than happy to have a discussion, to your point, and recycle that capital into shareholder and projects. Great question, Nate.
All right. Thanks, Joel. That's it for me.
Thank you.
There are no further questions at this time.
Thanks, everybody. Just want to thank everyone on the call, our shareholders, staff, everybody over the last 12-18 months moving through COVID. It feels like a pretty good quarter, and we're excited business is going in the right direction. Thank you everybody for your time.
Thank you.
This does conclude today's conference call. You may now disconnect.