Release Date: August 15, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Tidewater Renewables Ltd (TDWRF, Financial) reported a record adjusted EBITDA of $29.6 million for Q2 2024, a significant increase from $8.1 million in Q2 2023.
- The HDRD Complex achieved a 98% utilization rate with an average daily throughput of 2,925 barrels per day.
- The company successfully commissioned Canada's first renewable diesel plant, operating at nameplate capacity.
- Tidewater Renewables Ltd (TDWRF) has entered into a related party asset sale and forward credit sales agreement, providing $130 million in cash proceeds and an additional $81 million in cash flow.
- The company has made significant progress in the front-end engineering and design for its SAF project, with funding from the BC government.
Negative Points
- The market price for BC LCFS credits has significantly declined, averaging only $207 per credit in July 2024, down from $450 per credit earlier in the year.
- The decline in credit prices has created liquidity challenges for Tidewater Renewables Ltd (TDWRF).
- The company had to sell certain assets, including its canola co-processing and fluid catalytic cracking co-processing infrastructure, to improve liquidity.
- Tidewater Renewables Ltd (TDWRF) reported a $9.9 million realized hedging loss due to lower soybean prices.
- The company has a net debt of approximately $316 million as of the end of Q2 2024, although this is down from $346.6 million at year-end 2023.
Q & A Highlights
Q: Can you expand on the BC LCFS credit purchase aspect of the Midstream transaction? What is the implied price of the BC LCFS credits purchased by Midstream, and what would need to happen for Renewables to receive cash flow higher than the $80.7 million quoted?
A: Given the current credit market in British Columbia, we can't disclose the exact purchase price of the credits. The deal ensures that all Part 3 credits that Renewables has or may get, excluding SAF credits, will be purchased by Tidewater Midstream. This provides a floor and backstop to ensure cash flow positivity through the period. Renewables will generate credits from operating, which will be bought up to a minimum of $80 million.
Q: What scenario would have to take place for the purchase to exceed the $80.7 million?
A: This would depend on the credits generated and Midstream's willingness to purchase them.
Q: Is the transaction contingent on HDRD reaching a utilization of 90%? What happens if utilization falls below 90%?
A: The 90% utilization is to ensure enough credits are generated to reach the $80 million minimum. If utilization falls below this, the credits generated might be less, but we expect to sell all credits through the period.
Q: What was the EBITDA profile of the assets sold (canola co-processing, FCC, steam reformer) while they were in Renewables over the last year? What are the implications for Renewables without these assets?
A: The proceeds will be similar going forward. While some cash flow will no longer accrue at the Renewables level, there will be a significant reduction in debt and liquidity improvement. This will help Renewables navigate the current market disruption and continue operating as industry fundamentals improve.
Q: What is the impact of selling the used cooking oil business on the use of low-carbon feedstocks into HDRD moving forward?
A: The used cooking oil business was a small part of our operations and a bit of a distraction. We can purchase low-carbon feedstocks in the market at competitive rates and will continue to optimize the CI score of the feedstocks we run.
Q: What is the expectation for the renewal or replacement of the credit facility after the extension to August 30? Are there any other tangible liquidity sources?
A: The initial proceeds from the asset sale to Tidewater Midstream will pay off the first lien credit facility debt. We are evaluating all alternatives, including smaller asset sales. This transaction will provide the liquidity needed to navigate the current market and continue developing the renewables fuel business.
Q: What is the source of your optimism for a better credit market? What recommendations have you made to the government, and what has been the response?
A: We are seeing market tightening due to higher cost biodiesel facilities shutting down and discussions with the government on leveling the playing field. The government is supportive of a domestic renewables fuel industry, and there are simple fixes that can be made to support this.
Q: Are you obligated to sell credits to Tidewater Midstream if the BC LCFS credit price goes above the embedded price in your agreement?
A: For the first six months, Renewables is obligated to sell credits to Midstream. After that, there is a sharing mechanism for price appreciation.
Q: Why pursue the SAF project given the current market challenges?
A: The SAF project has strong fundamentals and upcoming blending obligations in British Columbia. We have a Part 3 funding agreement covering the costs and a small team supporting the project. Stopping now wouldn't make sense given the project's progress and funding.
Q: Can you identify the $47.8 million changes in noncash invested in working capital this quarter?
A: The majority was payables and accrued liabilities settled in Q2. Additionally, a large Part 3 credit sale was received in July, resulting in a working capital change. This is expected to be smaller on a regular quarterly basis.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
