New partnership locks in tallow feedstock for Tidewater’s renewable diesel project

Tidewater Renewables Ltd. has entered into a strategic renewable natural gas (RNG) and feedstock partnership with Rimrock RNG Inc. and Rimrock Cattle Company Ltd., the company announced April 4. Rimrock Cattle Company and its affiliates are one of the largest cattle-feeding operations in North America. The partnership will secure feedstock supply for both Tidewater Renewables’ RNG and renewable diesel business units while accelerating diversification of the corporation’s offerings of low carbon intensity fuels. The partnership will provide a material addition to Tidewater Renewables’ RNG production capabilities and is expected to be secured by 10- to 20-year offtake agreements with investment-grade counterparties.

Feedlot Inventory, Feedstock Ownership Partnership

The partnership creates alignment between Rimrock and Tidewater Renewables, secures feedstock supply for Tidewater Renewables and allows each party to focus on their core competencies to build and advance RNG projects. Tidewater Renewables will invest $30 million in exchange for a 50 percent ownership of Rimrock Cattle Company, including its associated cattle-feeding operations and cattle inventory. The $30 million investment will be paid for in four equal quarterly installments beginning this month. Rimrock Cattle Company has existing feedlot infrastructure in operation and is expected to generate gross annual EBITDA of between $10 million and $20 million. Tidewater Renewables’ ownership will be accounted for under the equity method of accounting.

Feedlot Inventory, Feedstock Ownership Partnership Highlights

• Rimrock Cattle Company is expected to control close to half the required feedstock for Tidewater Renewables’ renewable diesel facility in Prince George, British Columbia, Canada, in the form of tallow once the facility is operating at full capacity. In combination with Tidewater Renewables’ other feedstock-sourcing activities, the partnership substantially derisks the feedstock-supply requirements of the renewable diesel facility.

• Rimrock Cattle Company is also expected to produce substantially all the feedstock for the RNG facilities that make up the partnership, derisking the feedstock-supply requirement of those locations

RNG Facilities Partnership

Upon entering into the partnership, Tidewater Renewables and Rimrock plan to build and evaluate a number of projects across North America through a separate partnership. Tidewater Renewables and Rimrock plan to begin construction on their first Alberta-based RNG facility at High River, which is expected to have a gross capital cost of $65 million to $70 million and has received material government grant support. Tidewater Renewables’ net equity investment is expected to be approximately $10 million, and the corporation will retain a 51 percent ownership in the RNG facilities partnership. The High River facility is expected to generate gross annual EBITDA of approximately $10 million (approximately $5 million net to Tidewater Renewables). Tidewater Renewables and Rimrock are also evaluating three additional RNG facilities located in Alberta and Nebraska. Each project is expected to attract material government support, which dramatically improves project economics. Tidewater Renewables is pursuing 10- to 20-year investment-grade offtakes and has received multiple related term sheets.

RNG Facilities Partnership Highlights

• Material government support and investment-grade offtakes drive long-term contracted cashflows with strong rates of return

• Ability to self-fund future projects through a combination of prior RNG facilities partnership project cashflow, government support and low-cost project financing tied to investment-grade offtakes

• Leverage Tidewater Renewables’ natural gas storage asset, sour natural gas processing expertise and industry-leading natural gas marketing and logistics experience

Tidewater Renewables will also retain a right of first refusal on all future RNG facilities evaluated by Rimrock.

Under the terms of the partnership, Rimrock Cattle Company will continue to operate the feedlot infrastructure and Tidewater Renewables will operate the RNG facilities, each leveraging their own corporate expertise. The feedlot infrastructure also includes 7,200 acres of land in Alberta and Saskatchewan, providing further low-cost feedstock supply for the renewable diesel facility and significant economic upside.

Tidewater Renewables intends to fund these investments through a combination of its $150 million credit facility, a $26 million RNG credit facility to be obtained by a newly formed, wholly owned subsidiary, government grants, and project financing. Rimrock Cattle Company has received material government support to date, which is expected to continue and dramatically improve project economics and viability. The RNG credit facility is fully committed, has a term of 15 months and has an initial coupon of approximately 6.5 percent, which escalates every three months. The RNG credit facility is subject to certain conditions that Tidewater Renewables anticipates will be met in advance of any funding requirements.

Operational Update

Tidewater Renewables’ base business continues to exceed expectations, with quarterly adjusted EBITDA forecasted to be 10 percent to 20 percent above Q4 2021 throughout 2022. The corporation has also seen a material improvement in renewable diesel margins, with both diesel and British Columbia Low Carbon Fuel Standard credit prices heavily outpacing the cost of feedstock. In addition, Tidewater Renewables expects to realize an incremental margin associated with the Canadian Clean Fuel Standard credits, which are expected to come into effect in early 2023. Furthermore, the two critical feedstock partnerships announced over the past six months have reduced Tidewater Renewables’ projected feedstock costs. The corporation remains confident that the value increase in its previously announced BC LCFS credit sales will offset any inflationary pressure associated with capital costs of the renewable diesel facility, which remains on schedule for operation early next year.