Tidewater Midstream and Infrastructure Ltd. (OTCPK:TWMIF) Q1 2022 Earnings Conference Call May 12, 2022 1:00 PM ET

Tom Hems - Director of Investor Relations

Joel MacLeod - Chairman and Chief Executive Officer

Doug Beamer - Vice President of Corporate Finance

Brian Newmarch - Chief Financial Officer

Robert Hope - Scotiabank Global Banking and Markets

Patrick Kenny - National Bank Financial, Inc.

Cole Pereira - Stifel Nicolaus Canada Inc.

Robert Catellier - CIBC Capital Markets

Robert Kwan - RBC Capital Markets

Good afternoon, ladies and gentlemen, and welcome to the Tidewater Midstream 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. [Operator Instructions] This call is being recorded on Thursday, May 12, 2022.

I would now like to turn the conference over to Mr. Tom Hems, Director, Investor Relations. Please go ahead, sir.

Thank you, and welcome, everyone to Tidewater Midstream's first quarter results conference call. I'm Tom Hems, Director of Investor Relations. On the call with me today is Joel MacLeod, Tidewater's Chairman and CEO; Doug Beamer, Tidewater's VP of Corporate Finance; and Brian Newmarch, our new Chief Financial Officer.

Before passing off the call to Joel to review some highlights, we want to just quickly remind you that some of the comments made today may be forward-looking in nature, and are based on Tidewater's current expectations, estimates, judgments and projections. Forward-looking statements we may express, or implied today are subject to risk 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 at tidewatermidstream.com and on SEDAR.

And with that, I'll pass it off to Joel MacLeod to discuss some highlights from the quarter.

Thank you, Tom. Good morning, and thank you for joining our Q1 2022 conference call. We are pleased to have now delivered 12th consecutive record quarters of adjusted EBITDA growth and delivered $57 million of adjusted EBITDA in Q1 2022. This represents a 12% increase in per share adjusted EBITDA year-over-year. We also delivered record distributable cash flow of $22.3 million, which resulted in a payout ratio of 15%. Our 2022 consolidated adjusted EBITDA is expected to range from $230 million to $245 million with deconsolidated adjusted EBITDA expected to range between $180 million and $190 million.

We continue on our goal of deleveraging with $673 million of outstanding consolidated net debt as at March 31, 2022, representing a 21% or $184 million reduction compared to the first quarter of 2021. Our business continues to perform well and we are currently seeing outperformance, which we expect to continue through Q2 and throughout 2022 and into 2023. The main drivers of the outperformance being increased producer activities, increased volumes, higher margins, including crack spreads at Prince George, which are currently around $90 a barrel. This outperformance is accelerating deleveraging, which is extremely helpful where our two immediate priorities are our notes refinancing and our FID of our Pipestone Montney Sour Deep-Cut Phase II plant, which does include carbon capture.

We continue to progress the refinancing of our senior unsecured notes payable and second lien term loan and expects to close the refinancing before June 30, 2022. An announcement of the plan is expected to be made in the near term. We remain focused on improving our financial position and enhancing go-forward liquidity as well as funding future profitable growth opportunities.

Our credit syndicate remains incredibly supportive with potential to grow our current credit facility with the outperformance and continued record quarters. And we wish to thank our credit syndicate for all of their support. We are proceeding with an expansion of the Pipestone Natural Gas Plant, which we'll refer to as Pipestone Phase II, adding 100 million cubic feet a day of sour natural gas processing to the facility with the final investment decision expected to be announced in the near-term.

The expansion will enlarge our footprint in the liquids-rich Montney region with our existing capacity and natural gas storage assets. The expansion will be supported by 10-year take-or-pay commitments as well as extensions on existing take-or-pay commitments of up to 10 years at the current facility. We do wish to thank our largest shareholder in Birch Hill for all their support of the Pipestone expansion. We have seen material interest from private equity, financial partners, industry peers, and infrastructure funds, and continue to evaluate multiple attractive financing options for Pipestone Phase II.

We will jump over to the Prince George refinery for a quick update. During the first quarter of 2022, total throughput at the refinery was approximately 11,745 barrels a day, approximately 4% below the previous quarter due to extended scheduled maintenance at our main feedstock pipeline, which is operated by a third-party. Those issues have now been resolved, which has been great to see.

The Prince George crack spreads averaged more than $70 barrels a day for the first quarter of 2022, a 17% increase from the 2021 average of $60 a barrel. The increase in the Prince George crack spread is partially offset by increased regulatory compliance costs related to B.C. LCFS program.

A planned maintenance is scheduled for the second quarter of 2022 for our annual exchanger cleaning. This planned maintenance, in addition to the scheduled maintenance on the company's main feedstock pipeline, is expected to result in refinery throughput being similar to the first quarter average throughput. The maintenance – we are pleased to update that the maintenance is now complete and the refinery has been at expected throughput rates for the past three weeks where crack spreads are at all time highs now, and we expect to see material outperformance at Prince George in Q2 and throughout 2022. We also continue to progress various low capital, quick payout debottlenecking initiatives at Prince George.

We will now jump over to Pipestone. Pipestone as most of you are aware strategically located within the Alberta Montney fairway, the Pipestone Natural Gas Plant processed volumes of 97 million cubic feet a day in the first quarter of 2022, a 16% increase from the first quarter of 2021 and consistent with the fourth quarter of 2021. Facility availability for the first quarter of 2022 averaged 93%, an increase of 9% from the first quarter of 2021, and consistent with the fourth quarter of 2021 despite colder than normal first quarter temperatures.

The Pipestone Natural Gas Plant's next scheduled turnaround is in the third quarter of 2022, which is expected to decrease third quarter throughput by approximately 20%. Given the level of upstream activity within the Montney region of Pipestone, the Pipestone Natural Gas Plant remains fully contracted with over 85% of capacity committed to take-or-pay arrangements.

Pipestone continues to be one of the most active areas in Western Canada, especially given the regulatory challenges within British Columbia. We are seeing producers allocate materially more capital to Pipestone area. Further, although the Montney is driving 80% of the activity around Pipestone, it is great to see another play in the Charlie Lake, continuing to pick up activity right in our backyard.

Natural gas egress is starting to become a challenge for producers and the value of our Pipestone gas storage facility continues to increase as it offers an immediate egress solution for our customers and producers, and is connected to both TransCanada and Alliance.

Over to Brazeau River. The Brazeau River fractionation facility maintained steady operations during the first quarter of 2022 by maintaining stable plant production and truck in volumes. The fractionation facility utilization averaged 87%, a 12% increase from the first quarter of 2021 and a slight decrease of 6% from the fourth quarter of 2021. The Brazeau River fractionation facility will undergo and has now undergone, but we will give you an update here on our planned maintenance or turnaround. The fractionation facility continues to serve as a key asset for us and our NGL marketing business.

Throughput at the BRC gas processing facility for the first quarter of 2022 decreased by 13% compared to the first quarter of 2021 a decrease of 20% compared to the fourth quarter of 2021 primarily due to third-party equipment constraints and related TransAlta demand. The Corporation expects these constraints to be resolved and we have seen throughputs improve materially, especially as we've wrapped up turnaround here. Management does expect a similar second quarter throughput with potential for some related constraints.

Tidewater Midstream continues to look for opportunities to increase third-party throughput by working with producers to improve netbacks by increasing the utilization of the BRC's facilities. We now as of the last 48 hours or so have completed and very proud of the team completed our planned BRC turnaround in the last few days and we are extremely proud of the team where we had zero safety incidents and finished ahead of schedule and under budget. So great start to our turnaround, where we have multiple turnarounds, including Ram and Pipestone, but great job by the team and thanks to everyone.

Activity in the Deep Basin continues to increase materially and create significant opportunities for Brazeau River and Ram River and related gas storage assets. We are seeing activity in the Deep Basin, nearing 10-year highs and definitely very exciting for our Deep Basin assets, which are today somewhat underutilized.

Over to our subsidiaries. Just a quick update on Tidewater Renewables, 69% owned subsidiary saw a material outperformance in Q1 as well, which is great to see delivered $12.7 million of the EBITDA and expects the outperformance to continue through 2022 and into 2023, 80% of Tidewater Renewables EBITDA is backed by 10 to 15-year agreements. Tidewater Renewable remains confident in its 300% growth of adjusted EBITDA and 10 to 12 months with the renewable diesel facility coming online.

Again, we would like to reiterate a record quarter of adjusted EBITDA and distributable cash flow for shareholders. Further, we do expect a 13 consecutive record adjusted EBITDA quarter in Q2 and continued outperformance in 2022 and into 2023 for our shareholders. We are also confident in near-term execution of our notes refinancing at Pipestone Phase II FID. I do want to thank our staff, Board, shareholders, credit syndicate, partners and customers for all of your support.

I'll pass it over to our VP finance, Mr. Beamer, and he'll walk you through the financial highlights of our Q1. Thanks again.

Thank you, Joel. Good morning, everyone. I'll start off with a few key metrics. Tidewater Midstream delivered another successful quarter with consolidated adjusted EBITDA of $57 million in the first quarter of 2022, as compared to $54 million in the fourth quarter of 2021. The consolidated EBITDA was approximately $45 million for the quarter as compared to $43 million in the fourth quarter of 2021. Distributable cash flow for the quarter, which excludes the non-controlling interest portion of Tidewater Renewables was $22 million for the quarter compared to $14 million in the previous fourth quarter of 2021.

Our consolidated revenue for the quarter was $658 million, representing a 23% increase from the prior quarter in large part of strengthening of the commodity prices and continued strong demand at PGR and throughput at Pipestone. Consolidated gross operating margin, which includes realized gains on hedges, was approximately $67 million in Q1, representing a 10% increase from the fourth quarter of 2021 and the 20% increase from the same period in 2021 being the March 31, 2021.

Consolidated net debt was $673 million compared to $678 million in the previous quarter. The deconsolidated net debt was $606 million as compared to $619 million in the prior quarter. This represents – the decrease represents the strength of Tidewater's operations to be able to paydown debt and Tidewater Midstream has been able to successfully leverage within 3x to 3.5x debt-to-EBITDA range.

As previously mentioned, Tidewater Midstream continues to progress on the refinancing of its senior unsecured notes payable, and second lien term loans and expects to close the refinancing before June 30, with an announcement of the plan expected to be made in the near-term. The Corporation remains focused on improving its financial position and enhancing its go-forward liquidity as well as funding future profitable growth opportunities.

And with that, I'd like to introduce, Brian Newmarch, our new CFO. It is a pleasure – being a pleasure working with him in the last month, and I open it up to his thoughts and comments. Welcome Brian.

Thanks, Doug, and thanks, everyone for joining us. A great overview from the team on our strategy, outlook and Q1 results. Nice to see the business performing so well here. Joel actually shared a few brief comments on my initial impressions here at Tidewater, hopefully help with some fresh perspective and insight on our organization. I think the early impressions have been largely positive. I think some of the things that really stick out for me at the outset is the Tidewater culture and team. I think we can see from top to bottom, it's a group of highly engaged, empowered, talented people. And we have an entrepreneurial commercial attitude that pervades across the entire organization. And it feels that this agility and this attitude is a key competitive advantage for Tidewater here. We went through the first round of Board meetings over the last couple days here and have been impressed by the constructive dialogue in the caliber of the Board since all the takeaways from those meetings here.

As Doug and Joel alluded to, we do have some definite near-term priorities, both of which are progressing as expected here, specifically the refinancing of our senior unsecured and second lien debt and then moving towards a formal FID on Pipestone Phase II here. Maybe just from a macro perspective and how our asset base kind of fits into some of the dynamics that we are seeing at play here and I won't drone on and on, but I think we've seen in the last couple of months that the ESG movement is more than just an E. I think we've seen the importance of energy security and the opportunity Canadian energy in our industry can play in this construct that we are seeing here.

If we take a look at our asset base and where they sit, as Joel mentioned, we take a look at our gathering and processing assets and being in the heart of the Montney and the Deep Basin that of course we are tracking more capital and seeing more activity than we've seen in a long, long time here. If you take a look at the PGR and the refining asset and the performance of the crack and what that means in context of global supply demand balances for diesel refined product. I think what we are seeing is that this refinery and the ability for it to produce consumer fuels and distribute diesel and gasoline, both the consumers and to support the industrial activities that are taking place in that area put in a particularly advantaged region. And I think the financial results kind of speak for themselves.

And then lastly, on the storage assets, the shape of the natural gas curve has made for a tough couple of months for natural gas storage assets. But when you take a step back and think about the growth and receipt volumes in natural gas kind of within the basin, we take a look at upcoming maintenance seasons on the couple of the gathering systems here, and then even longer term as we think about flowing gas off the West Coast of Canada, the Pipestone storage asset specifically is in a very unique opportunistic geographical location and we can get excited about that pretty easily here.

Just to be a bit more balanced in my comments and views. I'm very excited about the asset base and the business performance and the team that I've had the good fortune of joining. We can see that Tidewater's been a high growth company. And I think it's going to be important that we balance our entrepreneurial edge and focus on growth with systems and accountability. Just to ensure that we have the right amount of structure in place to support a bigger business as we continue to grow here. And I think this goes across all aspects of the company, so people, technology, systems and processes and we just want to make sure that we can convert this growth into shareholder value and continue our focus on capital allocation that will drive profitable growth here.

Anyways, I will leave it there. I look forward to working with our investors, the larger financial community and our broader stakeholder groups. And I'll pass it back to Tom.

Great. Thanks, Brian and thanks, Joel and Doug for your comments as well. Lots of exciting pieces to work through. And just quickly before we open it up to the conference call questions, just wanted to say that if listeners do have any further questions beyond the conference call, don't be shy to reach out to myself or the team. My contact information for Tom Hems is at the bottom of the press release. So feel free to reach out. And I think with that, we can turn it back to the operator for questions.

Thank you, sir. Ladies and gentlemen, we will now conduct the question-and-answer session. [Operator Instructions] Your first question comes from Rob Hope with Scotiabank. Please go ahead.

Wanted to start off on Pipestone Phase II. Can you give us some thoughts on where you expect capital cost on the expansion will go to? And I guess, more broadly, how do you gain confidence in pursuing another rather large capital project in an inflationary time as well as trying to ensure your typical returns on this project?

Hi, Rob, good questions. So capital costs, we continue to work through, but getting more and more confidence, we would be in that $240 million range after the sale of the related cogen unit. So if you recall, initial Pipestone Phase I plan was in the $215 million, $220 million range. And I think we're essentially going to copy and paste what we built on Pipestone Phase I, same size, same process, same acid gas injection, and/or carbon capture. So for us, we've already built and definitely the civil side, we have the plot space to move forward. So we would say we have a lot of confidence. I'd say we're spending more time on getting firm, almost a turnkey, and definitely are exploring a turnkey option. Need a little more time before we commit to that. But I would just say, given we built the exact same plant at the same location previously, just outside of Grande Prairie would give us a lot of confidence. And then as we work towards FID, just ensuring we're locking down and have confidence in all our related costs.

All right. Thanks for that. And then I guess, interrelated question here. It's a rather large capital program, and you do have a couple of refinancings in front of you. So how do you envision kind of refinancing the existing maturities as well as fund the equity component of Pipestone? Is equity on the table? Are you looking more for partnerships? How are you thinking about these two interrelated ideas?

Yes. I would say focus is to get our notes refinanced, but there's potential that, that we refinance our notes and also FID Pipestone with the plan at the same time. The positives would be we’re in the heart of the Montney. We've seen recent transactions at 12x-ish multiples right in our backyard. And we've seen a pile of inbound interest from financial parties to infrastructure funds, to peers, so great to have multiple options there.

And to your point, we're likely going to need a form of external capital. I think the question will be, is it a strategic partnership? Is it a working interest? Or is it more of a financial partner? And the support of our largest shareholder at Birch Hill has been great. So work to do, and that's what we're focused on here over the next week or so, but confident we have multiple options to get to FID.

And knowing that, that we don't want to be in a situation where our leverage is over 4x again, but the outperformance of our business today, and we do expect to continue is also, dramatically helping our forward leverage multiples. And even through a build, we want to remain post build in that 3x to 3.5x, even in adding 10-year take-or-pay contracts. And we do expect the EBITDA from this asset to be comparable to what we're seeing at Pipestone Phase I, which is outperforming. If you recall Pipestone Phase I build, we said $30 million to $35 million of EBITDA. We're now at run rate of $40 million, with the plant running right at capacity, but we see a 6x build multiple, and then we see industry transacting in that 10x to 12x multiple range. So we just feel it's an opportunity we shouldn't pass on, but we are definitely evaluating bringing in a partner at this point in time.

Appreciate the color. Thank you.

Thank you. Your next question comes from Patrick Kenny with National Bank Financial. Please go ahead.

Yes. Hey, guys. Just to going back to your full-year EBITDA guidance, what average crack spread are you assuming within that range? Maybe you can comment on what portion of your expected sales volumes at PGR that you currently have hedged for the rest of the year? And also, maybe if you could provide any sensitivity for say a $5 per barrel change in the crack spread relative to your internal assumption that'd be great.

Yes. No problem, Pat. So our budget was done with a crack in the $70 to $75 a barrel range, so roughly where Q1 was. Obviously we've seen the crack spread improve. So that's very helpful to us. Your question on how much are you hedged? We historically, it is extremely difficult to hedge the Prince George rack and related crack just given liquidity. So we do look to hedge out, I would say 10-ish to 15% utilizing WTI and ULSD, but we do not have any large hedge positions on the refinery just given it is impossible to hedge the Prince George rack price, which is what our offtake is based upon. So I think the last part of your question was sensitivities. I think we would want to be conservative on our sensitivities, definitely seeing way more cash flow from the asset than we anticipated.

I know in the past we've messaged high-level $10-ish moving crack is about $30 of annualized EBITDA. We would just say, realize that even power and fuel, natural gas, even power-related costs, fuel costs have gone up, our ethanol costs have gone up. We do require biodiesel, renewable diesel and LCFS credit values have gone up. So I would say a reasonable range on a $10 crack would be – a conservative range would probably be in that $20 million of incremental adjusted EBITDA if you try to start to forecast kind of where our numbers could end up.

Okay. Thanks for that, Joel. And then just on the mechanical problem there recently at PGR, can you just provide a bit more color on what happened? If the contaminated diesel was isolated to retail stations or if some of that product found its way into your industrial customer's heavy machinery? Just curious if you had an estimate on the expected liabilities before and after any insurance recoveries?

Yes. No problem, Pat. So we haven't – so to start, there's nothing material – no material impact. We did make an insurance claim to-date. We've only had, I believe, two customers that have provided complaints. Nothing is material. There's a chance for sub-$500,000 as far as exposure, even if we didn't require an insurance claim. So we would continue, and that was between April 5 and 11. So we do feel we've seen the majority of the complaints and there's only been a handful and all the offspec diesel has now been returned. Our partners, our offtakers and offtakers that are underneath Synovus large refiners were very helpful through the process as almost all of them have relayed that they've had similar issues at times. So it was great to see no material impact and we're back over the last three weeks to cranking throughput in record cracks.

Okay. I appreciate that transparency. And then last one for me, just to follow-up on the Pipestone expansion. Curious what you can tell us from a counterparty standpoint. Looks like you have some existing customers expanding their commitments, but you've also brought in some new customers as well. So maybe you can just compare and contrast the counterparty profile for Phase II relative to your existing base?

Yes. I think Pat, we'd want to be a little careful, but we'd messaged similar contract customer profile to what we have in our existing facility. So potentially one large investment grade entity, and then I think most are aware of our other kind of intermediates. I think Kelt and Pipestone Energy are communicative of their support. And then there'd be a few that we'd probably be a little hesitant to relay names, but in general, similar type of balance sheets to the Kelts of the world, and the Pipestone and who have been incredible partners and we appreciate their support. And then there definitely are a few larger entities that are eager to be involved in Pipestone Phase II and Pipestone Phase III.

Okay. That's great. I'll leave it there. Thanks, Joel.

Thank you. Your next question comes from Cole Pereira with Stifel. Please go ahead.

Hi. Good morning. So just coming back to the EBITDA guidance range, so there's a spread of, call it, $15 million. I mean, is it really just that PGR crack that's the main difference that whether you come in at the low or the high end of that range?

Yes. I mean, Cole there's other factors, but you're right. What's the main bogie if you try to simplify what is the main item to watch? I would say it's also throughput, even Brazeau River, Ram River, we're seeing more and more activity so that could provide upside as well. But Prince George, definitely to Pat's question, if you ran a $10 crack sensitivity, and even if the conservative scenario is $20 million of EBITDA and we've got six months left, it's a 10 million-ish bump on our adjusted EBITDA. And that's a $10 moving to crack, which today we're probably a little higher than that as well. So yes, I would say PG is definitely the main factor. And I would say if cracks are to hold where they are today, again, our $180 million to $190 million is not based on current cracks. There's definitely some upside there.

Okay. Great. That's helpful. Thanks. And just coming back to the Pipestone expansion, so how much of the plant would you need to have contracted before you move forward with FID decision?

Yes. Great question, Cole. I think on our first facility, we were 50%, 60%. I would say on this one, we want more. So we would be, I would say 90%-plus contracted would be our goal and our target and we'd feel today, we are there. Obviously the markets can change, things can change, but definitely the customer support has been incredible. And now it's up to us to get our financing plan and our capital costs nailed and move forward here in the near-term.

Okay. Great. And what would we be looking at in terms of a build time and commissioning for the facility?

Yes. We don't want to put too much pressure on our project team. I think it's up to us to move forward with the financing and FID. We are pressing to be ready and online by the end of 2023. So today, we would feel that's possible. But I would say there's always risk. We could potentially slip into early 2024. We do expect to see the plant license here in the coming weeks, which is a huge step. If you recall, on Pipestone Phase I regulatory definitely took longer than we anticipated and a lot of sleepless nights, where our team has done a heck of a job on the regulatory side. So I would say regulatory is ahead of schedule. And then we continue to progress, which has been great to see, and the customer support has been impressive and we're very appreciative of all the customers and all their support.

Okay. Great. That's helpful. Thanks. I'll turn it back.

Thank you. Your next question comes from Robert Catellier with CIBC. Please go ahead.

I just have a couple follow-up questions here. I just want to understand the financing on the possible Pipestone expansion. Are you looking to do sort of a broader or bigger package along with renewing the subordinated term loan and the second lien term loan, or is there – do you have those refinancing in place and the Pipestone financing is separate?

Yes. I'd say today, we would view them as separate, but there is a chance they come together in one announcement, but we're definitely focused on the notes refinancing in definitely the near-term and also Pipestone FID, but we would view them as two separate steps that the positive has been our credits syndicate has been overwhelmingly supportive. So we're just kind of working through the timing of the two pieces, but it's great to see our credits syndicate extremely supportive of our Pipestone expansion. And the outperformance of our business has also been extremely helpful where we are looking to potentially bring in a few new banks as well.

Okay. Thanks for that. And then, I think you gave $40 million of EBITDA sort of rough guidance on the economics. Is there – does that include any downstream marketing or any utilization of the storage assets or is that the standalone expectation for the gas plant?

Yes, Rob. So it doesn't include gas storage, I want to be clear, but there is an NGL marketing component. We do market and margin share with all of our customers and haven't seen a single customer in Pipestone Phase I move away from us. So there's definitely a marketing piece in that $40 million. It would be depending on the related month or year between 10% and 20% of that $40 million of run rate EBITDA.

Okay. And just last clarification for me, Joel, when you say there's carbon capture there, you're really talking about an acid gas injection scheme? Or is there a bigger picture there?

Today, Rob, we would just keep it simple. So what do we have today in Pipestone Phase I. We drill two acid gas injection horizontal wells, where we are injecting H2S and CO2 down hole right now. So today the simple plan is to drill another two wells, same formation and be injecting H2S and CO2 down hole. There's definitely some of the financial parties are assigning a premium to that type of operation and are considering a broader expansion, but we got to stay focused. So I would say if there was a change to trying to get to 80%, maybe 90% carbon capture, that's down the road. We need to stay focused. We need to get our notes refinanced and we need to get Pipestone FID.

Okay. That's great. Thanks very much.

Thank you. Your next question comes from Robert Kwan with RBC Capital Markets. Please go ahead.

Great morning. Just I guess coming back to Pipestone here, I guess that you're probably not ready to disclose the financing option, but I'm just wondering, has your preferred financing option already been selected and if not, what have you rolled out in terms of options?

Robert, I would say just given the discussions we're having, we probably – I know we rarely say we don't want to answer a question. I just say we're right in the middle of discussions and don't want to impact where that moves. The good news is there's lots of options on the table, lots of interest, but I don't think we want to get into details and/or if a party has been selected.

Okay. I guess when you look at whether it was Pipestone and just Pioneer and all the builds you did in PGR acquisition, you referenced here that you want to keep debt-to-EBITDA under 4x. Just given what's happened with the share price and the valuation. Why is that? Why do you think that, that's where you want to be versus trying to structure such that you can keep the leverage materially below that 4x?

Robert, it's a great question. And it sure helps when our base business is outperforming. So I would say we are more open to using leverage, especially if we can stay under 4x and not having a complex working interest partner, although most would say a working interest partner is not that complex. So every day that these crack spreads hold where they are and potentially are even exceeding $90 a barrel, has our model show that there's potential, we would stay under 4x even by using leverage. Our main shareholder has been very supportive of evaluating these options and our credits syndicate has been unbelievable here over the last week. So I would just say we continue to work through options, but it's nice that the leverage option is still an option that's on the table, but I would hate to point to the exact plan today and we just asked for a little more time.

Got it. And just so I understand what you said there though, Joel, are you talking about because the results are strong and crack spreads are high that you wouldn't be very close to 4x, or are you saying that it gives you more debt capacity and that we're 4x higher kind of peak cycle type crack spread.

Yes. You've got it. I think that our business is outperforming, so our peak debt. There is a chance that it stays under 4x. And even the vendors, some of the turnkey vendors are offering financing options. So there's just multiple pieces to evaluate. And then it's also timing, timing of that capital. But even in point in time, if it's 3.9x, 3.8x and then when the facility comes online, we're at 3.2x, 3x with incremental tenure take-or-pays.

Most of our shareholders, I think, would say we're comfortable there, especially if the base business is outperforming, but two, we've seen strategics and peers look at the recent Pembina transaction, say, maybe we can pay that type of multiple to step into the premier asset that has carbon captured, that is connected to gas storage, the only facility in the area where egress is an issue. I don't want to promise a monster multiple, but there's definitely interest in that 10x to 12x multiple range to bring in a working interest partner. So all good problems, all good problems, lots of options, but definitely need to pick a path and wrap it up in the near-term.

Okay. That's great color. If I can just ask two small questions here. First, what crack spreads embedded in the 2022 guidance? And then the other just on the maintenance CapEx of $35 million to $40 million? I just wanted to confirm whether that's consolidated or deconsolidated?

Yes. No problem. So the crack spread, I would say, Robert, a $75 to $80 crack for the $180 million to $190 million. And then your second part of your question, sorry, Robert?

Just the maintenance CapEx of $35 million to $40 million that you cited, was that deconsolidated or consolidated?

That's deconsolidated. Renewables has a $12 million maintenance CapEx budget.

Right. So the consolidated is $47 million to $52 million.

Thank you. There are no further questions at this time. You may proceed.

Thank you, everyone. Really appreciate your time. Brian, welcome aboard.

Thanks. Look forward to it.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines. Have a great day.