Tidewater Renewables Ltd. (LCFS) Earnings Call Transcript

Thanks for that, Kelsey, and good day to everyone joining this joint call, where we'll go over the third quarter 2026 results for Tidewater Midstream and Infrastructure Limited together with Tidewater Renewables Limited. With me is Jeremy Baines, our CEO, who'll give an operational update on our assets, talk about regulatory tailwinds, and address favorable market conditions. We'll then get you up to speed on the proposed combination of Tidewater Midstream and Tidewater Renewables, first announced on November 2. After that, we'll take you through the financial results and the details behind the raised 2026 financial guidance, and then we'll open your lines for questions. Earlier today, both Tidewater Midstream and Tidewater Renewables reported results for the third quarter ended September 30, 2026. Copies of the news release, financial statements, and MD&As are available on SEDAR+ or on the websites of the respective companies. Before we start, I'd like to note that this call is being recorded so individual shareholders, members of the media, and other interested parties can review it later. Some comments today may be forward-looking and reflect Tidewater's current expectations, judgments, and projections. The forward-looking statements we make today involve risks and uncertainties that could cause actual results to differ from expectations. In addition, some of the information provided relates to non-GAAP measures. For more details on forward-looking statements, non-GAAP measures, and risk factors, please refer to the company's various financial reports, which are available on the company's websites and on SEDAR+. I'll now turn things over to Jeremy. Thanks, Ian. Thank you all for joining us today. I'll start with our fuels business. During the third quarter, the renewable diesel complex achieved record average daily throughput of 3,411 barrels per day. That equates to a 114% utilization rate. Operating consistently well above the facility's 3,000 barrels per day design capacity has been possible thanks to the outstanding efforts of our operations team, who completed a number of very low-cost debottlenecking initiatives earlier in the year. We believe we can continue running at these elevated utilization levels through the winter months ahead, apart from brief periods of lower rates while we complete scheduled maintenance. Operating above nameplate capacity in a quarter when we delivered record margins on renewable diesel sales priced at U.S. import parity, plus an additional 16 cents per liter of margin captured from the biofuels production incentive, generated the record financial results Ian will cover later on this call. Moving to the conventional refinery, throughput at the Prince George Refinery averaged 11,798 barrels per day in the third quarter, which equates to a 98% utilization rate. During Q3, refined product market conditions—diesel especially—stood at historic highs, driven by energy supply interruptions worldwide and shrinking global refining capacity, particularly in the Middle East and Russia. As a result, the Prince George crack spread averaged $160 per barrel in the third quarter of 2026, a 35% increase over the second quarter of 2026, and we also saw CAD 0.16 per liter on November 12, 2026. As we mentioned before, Tidewater Midstream had hedged about 50% of the crack spread exposure it carries for 2026, which means that on approximately half of its Q3 sales the company captured the stronger market crack spread, while the remaining portion of those sales settled at the previously hedged price. Looking toward Q4 of this year and beyond, North American refining margins have eased somewhat from the record pricing levels seen during Q3. Even so, margins ought to remain quite constructive. Globally, about 7% of refinery capacity remains offline, and a substantial portion of that involves damaged equipment requiring lengthy repair or rebuild timelines. Beyond that, inventories of both diesel and gasoline continue to sit below the five-year historical range, which will limit how effectively the market can absorb upcoming refinery outages, transportation disruptions, or rising demand without meaningful price increases. Turning to 2027, Tidewater has secured hedges covering roughly half of its 211 crack spread exposure, plus 30% of its R100 and soybean oil exposure — each at fixed prices positioned well above mid-cycle pricing and above the hedged pricing set for 2026, with CAD 0.16 per liter as of November 12, 2026. Our hedging program functions as a critical risk management tool, one that curtails exposure to commodity prices and sets a baseline for the corporation's free cash flow. Now, on the regulatory side, notable developments have occurred at both the provincial and federal levels. In late October, the Conservative Party of British Columbia won a majority government in the provincial elections. A change in government can certainly introduce policy uncertainty, but I want to offer some important perspectives. First, the plan for a stronger BC published by the Conservative Party includes a commitment to establish a provincial bioenergy strategy, and that strategy would prioritize new low-carbon energy products within the clean fuels hub already operating in Prince George. The Conservatives also introduced their energy superpower strategy, intended to drive major investment in BC's energy infrastructure—such as building additional LNG facilities, tripling natural gas output by 2035, and expanding energy infrastructure corridors with new pipelines and transmission lines. These large-scale builds have boosted demand for refined products, especially diesel, around Prince George, where Tidewater holds a competitive logistics edge. A third point worth noting: although the newly elected BC Conservative Party pledged to repeal the CleanBC climate plan, it's important to note that BC's low-carbon fuel standard is a separate statutory program, first created in 2008 by the BC Liberal Party. The Low Carbon Fuels Act stands apart from CleanBC, so repealing the CleanBC climate plan would not bring the BC LCFS program to an end. On the federal side, on October 27, 2026, the Canadian government announced proposed amendments to clean fuel regulations, and those changes were intended to bolster Canada's low-carbon fuel industry. One of the main pieces of the proposed amendments was CFR credit multipliers applying to low-carbon fuels made in Canada — more precisely, a multiplier of 1.8 times for SAF, 1.5 times for renewable diesel, 1.4 times for co-processed diesel and biodiesel, and 1.3 times for co-processed gasoline and ethanol. As proposed, the multiplier on the renewable diesel credit should be a plus for Tidewater's HDRD complex, and Prince George Refinery also stands to gain — through both its co-processing assets and blending of low-carbon fuels. At PGR, processing canola yields roughly 700 barrels per day of low-carbon diesel and gasoline, and those volumes would benefit from the proposed CFR credit multipliers. Beyond that, the extra CFR credits Tidewater will get from Canadian biodiesel and ethanol that it purchases and blends into conventional refined products would likewise gain from the proposed CFR credit multipliers. Ian will go through more detail later on this call regarding the financial benefits anticipated from the proposed amendments, and those benefits are significant. Turning now to our sustainable aviation fuel initiative: the suggested changes being put forward for the clean fuels rules — most notably the 1.8x credit multiplier that applies to SAF — would provide substantial financial backing for the SAF project we have proposed, with the proposed amendments also including a CAD 0.16 per liter figure cited in the November 12, 2026 materials.

Those particular amendments are now subject to a 75-day federal consultation period that runs through January 14, 2027, and after that the federal government could still change the rules before they are finalized and take effect. Given that ongoing regulatory uncertainty, Tidewater has decided, as a prudent measure, to move its targeted timeline for a potential FID to the first half of 2027; the extension allows the company to participate actively in the 75-day federal CFR consultation, continue advocating for further regulatory amendments that would support building a domestic SAF industry, and keep advancing long-term offtake agreements as well as committed financing required to support efficient project execution. Moving on to the midstream assets, at the BRC, gas processing throughput averaged 95 million cubic feet per day during the third quarter of 2026, down 11 million cubic feet per day from the second quarter of 2026. That weaker throughput was driven primarily by upstream producer maintenance and softer AECO pricing, both of which reduced the producer volumes moving through the facility and also pushed fractionation facility utilization down to 72% in the third quarter; we continue to hold active discussions with prospective and existing customers as we work to raise utilization at the BRC. The Ram River gas plant remains temporarily curtailed while sulfur handling operations continue to run. At present, sulfur prices in the market sit at levels that, in our view, make sour gas production highly attractive, and we plan to bring the gas plant back online once output in that region resumes, at roughly 44%. As everyone knows, on November 2, Tidewater Midstream and Tidewater Renewables announced their proposed merger, in which Tidewater Midstream would acquire all remaining Tidewater Renewables stock it does not currently own through an all-share transaction. For each Tidewater Renewables share they hold, holders would get 0.88 of a Tidewater Midstream share. This transaction creates more value for every shareholder in several ways. First, it simplifies the company's structure, with one board, one management team, and one corporate strategy. Second, it gives us improved access to capital markets through a larger public float, better trading liquidity, and an investment case that is easier to understand. Third, it leaves us with a stronger financial profile thanks to a unified approach to financing and capital allocation, which we expect to produce transaction synergies of $30 million to $40 million on a net present value basis by reducing public company costs, capturing operating and financing efficiencies, and extending the tax horizon. And fourth, it gives us a broader, more diversified asset base that is best positioned to capture upside from the current market environment and supportive policy tailwinds. Independent director special committees at each company have unanimously backed the deal, and the non-conflicted directors on each board have approved it. Support agreements and voting agreements have been signed by holders of roughly 49% of Tidewater Renewables shares eligible for the minority vote, as well as about 41% of Tidewater Midstream's outstanding shares, binding them to back the transaction. Approximately 44% is the figure that underscores how solid that backing is. Because of this, we hold strong confidence that the needed shareholder approvals will be secured, and we anticipate closing on or around December 18, 2026, provided the applicable closing conditions are satisfied or waived. Once the transaction closes, the combined company will focus on four core priorities: 1. Keep flexibility on the balance sheet, and allow near-term free cash flow to continue supporting debt reduction while we refine the long-term capital structure. 2. Assess growth and margin improvement opportunities, with emphasis on raising utilization of assets we already own, expanding services across our business, and selectively pursuing brownfield, tuck-in, and greenfield opportunities that meet our return thresholds. 3. Keep refining the portfolio by evaluating how existing assets perform, whether they are a strategic fit, and their long-term free cash flow generation, including chances to shift capital toward higher-value uses. 4. As always, operational excellence and prudent risk management, which will prioritize reliable, cost-effective operations, disciplined capital allocation, and a measured hedging strategy designed to reduce commodity margin volatility. This proposed merger would give management more room to maneuver in pursuing those priorities while still keeping the balance sheet disciplined. With that, I'll hand things over to Ian for the financial review. Thank you, Jeremy. For Q3 2026, Tidewater reported consolidated adjusted EBITDA on a record basis of $96.9 million, which is $8 million better than what we saw in Q2 2026. Adjusted EBITDA at Tidewater Renewables came in at $54.6 million for the third quarter. Driving that result was the HDRD complex operating above nameplate capacity, letting us lock in highly attractive market pricing through our offtake contracts, which are tied to U.S. import parity pricing benchmarks. Tidewater Midstream posted deconsolidated adjusted EBITDA of $42.3 million for Q3 2026 — that's $9.4 million higher than Q2 2026. The main factor behind this was stronger crack spreads at the Prince George Refinery, though realized losses on crack spread hedges partly offset that gain. Now turning to the new credit facilities and leverage: during the third quarter the corporation made substantial headway on its debt reduction and deleveraging targets. Consolidated net debt fell by $97.4 million in Q3, which came from a $38.8 million drop in Tidewater Midstream's deconsolidated credit facility balances, along with a $58.6 million decrease in Tidewater Renewables' net debt. During 2026's first nine months, consolidated net debt has been cut by $139 million. Along with the robust adjusted EBITDA we posted for Q3 and for the year to date, that has driven meaningful leverage improvement. At 1.3 times, our consolidated debt-to-adjusted EBITDA ratio now sits under the run rate net debt-to-adjusted EBITDA target leverage range of 1.5 to 2.5 times. There's one more thing worth highlighting for the company: the fully underwritten debt commitment letter that was signed and announced in connection with the proposed combination of Tidewater Midstream and Tidewater Renewables. National Bank of Canada and ATB Financial — two lenders that have been with us over the long term — have agreed to underwrite senior secured credit facilities of as much as $400 million, giving the combined company greater financing flexibility to refinance existing debt and cover general corporate purposes, subject to the transaction closing. That underwritten facility has a maturity of three years from the transaction's closing date, and its pricing is considerably more favorable than what Tidewater pays under its existing first and second lien credit facilities. Combined with lower net debt outstanding, Tidewater expects cash interest costs in 2027 to be significantly lower than in 2026. Along with the Q3 financial results we released this morning, we said we are raising our adjusted EBITDA outlook for full-year 2026 and reducing our full-year 2026 capex outlook. We now expect consolidated adjusted EBITDA to land somewhere between $300 million and $320 million — that's 29% above the midpoint of what we previously guided, with roughly 44% of the improvement tied to the factors below. Driving the increase are higher utilization rates at the Prince George Refinery and the Renewable Diesel Complex, along with sustained strength in forward pricing for crack spreads, renewable diesel, and emissions credits.

Let me stress that the increased 2026 EBITDA outlook assumes zero gain from the targeted Clean Fuels Regulations changes now on the table, because those changes are still just proposals and likely won't be wrapped up before late Q1 or sometime in Q2 2027. If they do get finalized in the form proposed, we'd book an additional $30 million to $40 million of expected adjusted EBITDA in 2027 tied to CFR emissions credits from 2026 output and sales of renewable diesel, co-processed diesel and gasoline, plus blended biodiesel and ethanol. We'd also expect another $40 million to $50 million of adjusted EBITDA for CFR emissions credits from anticipated 2027 production and sales of those low-carbon fuels. The main reason the adjusted EBITDA effects differ between 2026 and 2027 comes down to how the contractual arrangements are structured in each of those years. A set of important assumptions underlies these projected EBITDA gains: that the proposed regulations stay as they are once the 75-day consultation period ends; that CFR credits arising from applying the credit multipliers retroactively to the 2026 period will be obtained during the first half of 2027; that CFR credit market prices will average $300 to $400 per credit across 2027; and that 2027 production and sales volumes will match 2026's actual and forecasted levels. If any one of these assumptions were to shift, the anticipated effect on operations' adjusted EBITDA would shift too. For 2026, we now expect consolidated capital expenditures of $15 million to $20 million, which is $5 million lower than our prior forecast. That capital guidance includes both growth and maintenance capital, and it is net of the BC LCFS credits we anticipate receiving under executed initiative agreements tied to the capital projects. By keeping our capital program disciplined while raising full-year 2026 adjusted EBITDA guidance, we anticipate the business will keep producing very meaningful free cash flow, which will continue to go primarily toward reducing debt. As we look toward 2027, our plan is to issue that year's financial guidance once the Tidewater Midstream and Tidewater Renewables merger has closed, anticipated on or about December 18, 2026. That wraps up our prepared remarks. Kelsey, would you please open the line for questions.

Morning, everyone. Nice work on those strong results and bringing leverage down. Could we go a bit further into the remark that 2027 results will beat 2026? I just want to be sure I've got it all straight, and I know you touched on a few of these already. Maybe you could say a little more about what you expect crack spreads to be in 2027, and where things stand on hedging for '27 in terms of pricing? And then I'd like confirmation that the 2027 comment about exceeding '26 factors in the higher multipliers for the CFR.

Let me take that, and then Ian can fill in some of the finer points. Looking at our 2027 and at the levels where we've hedged 2026, if you simply take the current forward curve for crack spreads, we will beat what we did in 2026 by a material margin; and then, on top of that, the effect of the new CFR targeted amendments, assuming those are in place for 2027, contributes another significant element to that outlook that is materially above the results we delivered in 2026. Keep in mind that in 2026 we hedged fairly early and prices kept rising afterward. Still, it's a very robust outlook for 2027. Clearly, the strength in regulatory changes we've seen has been material over recent periods. With continued deleveraging, continued optimization, and the operational rates we achieved in '26 that we believe we can hit in '27; and if we do, it'll probably be a little better. So yes, we're quite optimistic about where the business is headed and about the strength of the platform's ability to generate cash flow.

I appreciate that. Then maybe turning to the CFR changes, I imagine you've had contact with the federal government both before and after that. Could you perhaps talk about the consultations you've been carrying out with the government, and also how confident you are that the regulations will pass roughly as filed or proposed?

Yes, so clearly the government does a very thoughtful and extensive evaluation when they're considering what they want to do with these regulations. I can't recall exactly when they first posted this sort of draft, but it was earlier in 2026. We provided extensive and full written, I guess, suggestions or comments on those regulations. They've now posted them to the Gazette. Usually, tweaks after this point are not huge; we keep advocating for certain things that we believe would be enhancements to these amendments that will support the Canadian energy industry, and we will again submit fulsome comments; but once these things are posted, they go through this second comment period. We do fully expect that these will be implemented. Our best guess is substantially in the form that they've outlined. They've done a ton of work; this has probably been going on for over a year at the federal level to try to make sure they get these right, and we do expect that to be in place.

That's excellent. Many thanks.

Thank you, Ian. Morning to all. I'd like to pick up where we left off on government support, or to put it more precisely, I'm actually trying to get a handle on which gating factors still stand in the way of the SAF project. You brought up the 75-day consultation period earlier. Is that genuinely the main item, perhaps even the sole one, still standing between you and FID on this? And a quick second question: in your prepared remarks you also touched on the BC government's forthcoming provincial bioenergy strategy. Would you likewise have to wait on that, and if so, what's your thinking on timing?

I'd say it lines up with what we've disclosed before: a central condition we identified for reaching the FID decision on the SAF project was a suitable multiplier for SAF. At 1.8 times, that's quite near the figure we proposed during the consultation. So that element of the SAF equation, provided these turn into final rules and law, has now been satisfied. You may also remember our discussion of the support secured for the renewable diesel facility via the Part 3 agreements with British Columbia. We anticipate getting, roughly speaking, a comparable level of support on this one. Once that is finalized, we're in fairly solid shape for a SAF FID; we keep advocating for particular regulatory refinements that would help the SAF industry and make this project investable; and progress keeps being made. And clearly, with these targeted amendments, the federal government is backing BC. BC has backed this too. There has, of course, been a change of government, yet reading their policy platform, we expect their support to carry on. From an energy standpoint, Prince George will be a focus. And I'd call us the leader in Canada, given we built the first greenfield renewable diesel facility, and our SAF project in Prince George forms part of the policy plank they are seeking to advance. So we're excited, progress continues, we're not there yet, and we need somewhat more certainty from government on a few of these regulatory matters, but good progress keeps being made as we work toward securing FID for that project.