An investment in a company with new divisions just starting to substantially increase cash flow doesn’t come along every day.
Tidewater Midstream and Infrastructure Inc. appears to fit the description with 11 acquisitions in the oil and gas business since 2015. These acquisitions created a modest midstream operation with gas processing plants, gathering pipelines, storage and some natural gas marketing.
The company operates 5,800 km of pipelines and 1.6 billion cubic feet of natural gas processing plant capacity.
Late last year the company acquired the Prince George oil refinery, actually located at Taylor, B.C. The 12 million barrel a year capacity refinery was built to try and cut the high price of gasoline in the north, often three and four times the Lower Mainland price.
Forestry and mining in the region use more than the refinery produces with 45 per cent of output as diesel, 40 per cent as gasoline and 15 per cent as bunker oil and other products.
The refinery price of $215 million plus $62 million for inventory was funded largely by borrowing and stretched the balance sheet. Major shareholder Birch Hill Equity Partners of Toronto bought $63 million in new shares when the refinery purchase was announced.
The $1.3 billion Birch Hills operation owns 24 per cent of Tidewater and has invested in Home Equity Bank, CCM, and GDI, the cleaning company consolidator among others.
With the acquisition came a five-year contract with Husky Oil to buy 90 per cent of refinery product.
The bulk of impact from the refinery acquisition will come in the next six months.
Cash flow from the refinery deal will be complemented by full operation of the new Pipestone gas processing plant with large volumes and potential expansion.
To reduce debt, Tidewater has sold a natural gas cogeneration plant to Transalta for $85 million and half of a major pipeline for $138 million clear.
With assets of $1.3 billion, the $353 million net debt may not seem that outsized, but Tidewater is focused on debt reduction.
Debt runs around three times the flow of cash, a ratio that is uncomfortably high.
The discomfort showed up when Husky Oil used an escape clause to only buy 80 per cent of refinery production this spring due to lower demand caused by COVID-19.
At 92 cents a share, Tidewater is well above the 35-cent low in the March massacre and about two-thirds the $1.45 high.
The level of debt and the reduced refinery demand are the main roadblocks to a higher price — that and the fact this is an oil-related business.
Tidewater is well positioned to gain long term benefits from natural gas development for LNG plants on the West Coast if they ever get built. The dividend yields 4.8 per cent.
CAUTION: Remember when investing, consult your adviser and do your homework before buying any security. Bizworld does not recommend investments.
Ron Walter can be reached at ronjoy@sasktel.net
The views and opinions expressed in this article are those of the author, and do not necessarily reflect the position of this publication.
