Tidewater Midstream and Infrastructure Ltd. - Management Reports 2021

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Management’s Discussion and Analysis for the year ended December 31, 2020

March 10, 2021

MANAGEMENT’S DISCUSSION AND ANALYSIS

The following Management’s Discussion and Analysis (“MD&A”) of the audited annual consolidated financial and operating results of Tidewater Midstream and Infrastructure Ltd. (“Tidewater” or the “Corporation”) is dated March 10, 2021 and should be read in conjunction with Tidewater’s audited consolidated financial statements as at and for the year ended December 31, 2020 and 2019 (the “Financial Statements”). The Financial Statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”), representing generally accepted accounting principles (“GAAP”). Effective December 31, 2020, the Corporation voluntarily changed its accounting policy with respect to the discounting of its decommissioning liabilities. As a result, certain comparative information has been restated in this MD&A. Refer to the “Voluntary Change in Accounting Policy” section of this document for a description of the changes and the effect on the Corporation’s consolidated financial statements. This MD&A contains non-GAAP measures and forward-looking statements and readers are cautioned that the MD&A should be read in conjunction with Tidewater’s disclosure under “Non-GAAP Measures” and “Forward-Looking Information” included at the end of this MD&A.

Management is responsible for preparing the MD&A. The MD&A has been reviewed and recommended by the Audit Committee of Tidewater’s Board of Directors and approved by its Board of Directors.

BUSINESS OVERVIEW

Tidewater’s common shares are publicly traded on the Toronto Stock Exchange (“TSX”) under the symbol “TWM”. Tidewater’s objective is to build a diversified midstream infrastructure company in the North American crude oil, natural gas and natural gas liquids (“NGL”) value chain. Its strategy is to profitably grow and create shareholder value through the acquisition and development of oil and gas infrastructure. To achieve its business objective, Tidewater is focused on providing customers with a full service, vertically integrated value chain, including downstream facilities, gas plants, pipelines, railcars, trucks, export terminals and storage. To complement its asset base, Tidewater also markets crude oil, refined product, natural gas and NGL products and services to customers across North America.

Tidewater’s downstream operations refine crude oil feedstock into gasoline and diesel. The Corporation’s pipelines and processing plants gather and process raw natural gas before it is injected into long-distance pipeline systems for transportation to end-use markets. Tidewater’s straddle plants process, store and transport the by-products of natural gas processing, including NGLs such as ethane, propane, butane and condensate.

Tidewater’s key assets include: the Prince George Refinery (“PGR”), which has an offtake agreement with Husky Energy Inc. (“Husky”, now a subsidiary of Cenovus Energy Inc.); the Pipestone Gas Plant, which has over 80% of its volumes under take-or-pay contracts; the Brazeau River Complex and Fractionation Facility (“BRC”), which allows producers access to three natural gas egress solutions; Ram River Gas Plant, which is a rail-connected processing facility; and natural gas storage assets, which are contracted to six investment grade counterparties.

Additional information relating to Tidewater is available on SEDAR at www.sedar.com and at www.tidewatermidstream.com.

HIGHLIGHTS

The Corporation’s full year performance continues to highlight the resiliency and stability of its integrated business model, given the challenges faced due to the global pandemic. Adjusted EBITDA increased to $48.8 million in the fourth quarter of 2020 as compared to $40.0 million in the fourth quarter of 2019, resulting in 22% Adjusted EBITDA growth. Adjusted EBITDA also increased by $1.2 million as compared to the third quarter of 2020 resulting in 3% Adjusted EBITDA growth. Net income attributable to shareholders was $7.1 million for the fourth quarter of 2020 as compared to net loss of $12.6 million in the fourth quarter of 2019. The increase is a result of realized and unrealized gains on derivative contracts.
Net cash provided by operating activities totaled $54.6 million for the fourth quarter of 2020, with distributable cash flow of $13.5 million and a payout ratio of 25%.
The Corporation has received material interest from external capital providers to develop various renewable energy and clean fuels projects. Tidewater has also had significant support from the BC and federal governments on their renewable initiatives and the Corporation wishes to thank the BC and federal governments for their support. With the increasing BC low carbon fuel standard credit prices and the commencement of the Canadian Clean Fuel Standard in 2022, the economics of these projects continue to display attractive returns and complement Tidewater’s asset base. The Corporation has a vital role to play in the long-term renewable energy transition in Canada and is currently developing clean fuels through its existing hydrogen and carbon capture assets, its ability to blend ethanol and renewable diesel and its current canola co-processing project. Tidewater is also evaluating opportunities in various renewable energy initiatives including renewable diesel, co-processing, renewable hydrogen, blue hydrogen, renewable natural gas, carbon capture, and other renewable energy projects.
The Corporation, together with its partner TransAlta Corporation (“TransAlta”), continues to move forward on its sale of the Pioneer Pipeline to ATCO Gas and Pipelines Ltd. (“ATCO”) for gross proceeds of $255 million (the “Pioneer Transaction”). Net cash proceeds to Tidewater will be approximately $135 million which includes certain ancillary assets and completion of budgeted restoration work to be paid for by TransAlta. The transaction is subject to customary conditions for a transaction of this nature including regulatory approvals by the Alberta Utilities Commission and the Alberta Energy Regulator. Regulatory approval is anticipated in the second quarter of 2021 and Tidewater remains proactive in its efforts to complete the transaction on a timely basis.
Tidewater’s top priorities remain free cash flow generation and debt reduction. Tidewater is committed to reducing leverage throughout 2021 with a target of 3.0x to 3.5x Net Debt to annualized Adjusted EBITDA, with closing of the Pioneer Transaction.
The current market environment is showing positive signs of increased producer activity and increasing demand for the Corporation’s services and underutilized capacity. Tidewater continues to see strong demand at PGR as a result of large infrastructure projects in central and northern British Columbia. Throughput at PGR remains strong at over 12,000 bbls/day with combined gasoline and diesel production over 10,500 bbls/day. The PGR crack spread, a measure of refining margins, has continued to rise and has been at its highest point since the first quarter of 2020. The Pipestone Gas Plant had its strongest run times in December and cashflow generation to date during the fourth quarter.
The Corporation is committed to its Environmental, Social and Governance (“ESG”) performance. Earlier this year, Tidewater introduced a website interface for all stakeholders to view ESG performance metrics. Tidewater is committed to enhancing its disclosures and in November published a significant increase in ESG metrics and corporate policies which highlight several improving trends. This information is available at www.tidewatermidstream.com/esg/.

FINANCIAL HIGHLIGHTS

(in thousands of Canadian dollars except per share information) Three months ended December 31, Year ended December 31, 2020 2019 2020 2019	(in thousands of Canadian dollars except per share information) Three months ended December 31, Year ended December 31, 2020 2019 2020 2019	(in thousands of Canadian dollars except per share information) Three months ended December 31, Year ended December 31, 2020 2019 2020 2019	(in thousands of Canadian dollars except per share information) Three months ended December 31, Year ended December 31, 2020 2019 2020 2019	(in thousands of Canadian dollars except per share information) Three months ended December 31, Year ended December 31, 2020 2019 2020 2019
		2019	2020	2019
Revenue $ 274,913$ 266,247 $ 979,406$ 692,268 Net income (loss) attributable to shareholders(1) $ 7,075 $ (12,610) $ (33,771) $ (6,746) Basic net income (loss) attributable to shareholders per share(1) $ 0.02 $ (0.04) $ (0.10) $ (0.02) Diluted net income (loss) attributable to shareholders per share(1) $ 0.02 (0.04) $ (0.10) (0.02) Adjusted EBITDA(2) $ 48,778$ 39,987 $ 179,759$ 109,673 Net cash provided by operating activities $ 54,609$ 68,219 $ 205,574$ 91,520 Distributable cash flow(2) $ 13,545$ 17,483 $ 47,171$ 56,370 Distributable cash flow per common share – basic(2) $ 0.04$ 0.05 $ 0.14$ 0.17 Distributable cash flow per common share
– diluted(2) Dividends declared Dividends declared per common share Total common shares outstanding (000s) Payout ratio(2) Total assets(1) Net debt(2)	$ 0.03 $ 0.05 $ 3,391$ 3,374 $ 0.01$ 0.01 339,098 337,376 25% 19% $ 1,863,655$ 1,829,584 $ 854,016$ 842,046		$ 0.14 $ 0.17 $ 13,538$ 13,343 $ 0.04$ 0.04 339,098 337,376 29% 24% $ 1,863,655$ 1,829,584 $ 854,016$ 842,046

(1) Amounts for the three months and year ended December 31, 2019 have been restated. Refer to the “Voluntary Change in Accounting Policy”.

(2) Refer to “Non-GAAP Measures”.

COVID-19 UPDATE

Tidewater continues to monitor the developments related to COVID-19 as variants continue to rise and governments extend restrictions. There are still uncertainties around the pandemic and the economic recovery given the COVID-19 vaccination pace. Safeguarding the well-being of Tidewater’s personnel is its principal concern and it is focused on operating safely and responsibly and providing the essential services that its communities and customers rely on during the COVID-19 pandemic. The Board of Directors, executive team and division leaders continue to meet regularly to align response strategies and efforts within all areas of the Corporation. The Corporation operates safely and reliably, following COVID-19 protocols in both the field and in offices, including social distancing and working remotely, as conditions warrant. The Corporation’s facilities continue to remain fully operational and capable of meeting customer needs. The Corporation commends its employees for continuing to operate safely and responsibly and providing extra customer service in this challenging environment.

RESULTS OF OPERATIONS

Overview

Tidewater’s operations are strategically located in three core areas in the WCSB (Deep Basin, Montney and Edmonton) as well as in central British Columbia. Tidewater views its operations as one vertically integrated set of operations which consists of refining operations, natural gas processing, NGL extraction, gas storage, crude oil and NGL terminalling infrastructure and marketing to end-use markets through transmission pipelines and rail systems.

Financial overview

hd d dll h Three months ended December 31, Year ended December 31,	hd d dll h Three months ended December 31, Year ended December 31,	hd d dll h Three months ended December 31, Year ended December 31,	hd d dll h Three months ended December 31, Year ended December 31,
(in tousans of Canaian oars except per sare information) 2020	2019	2020	2019
Revenue $ 274,913 $ 266,247 Operating expenses $ 228,451 $ 233,898 General and administrative $ 5,883$ 4,206 Share-based compensation $ 1,546$ 2,143 Depreciation(1) $ 22,143$ 18,995 Finance costs and other(1) $ 14,654$ 12,665 Realized loss (gain) on derivative contracts $ (6,075) $ (2,070)		$ 979,406 $ 692,268 $ 819,657 $ 604,132 $ 18,651$ 14,437 $ 7,068$ 9,504 $ 85,641$ 60,264 $ 68,558$ 27,428 $ (30,349) $ (34,013)
Unrealized (gain) loss on derivative contracts $ (5,747) $ 9,414 $ 41,741$ 15,061 Realized loss (gain) on sale of assets(1) $ 46$ 493 $ 10,854$ (2,635) Loss (income) from equity investments(1) $ 417$ 671 $ 137$ (753) Deferred income tax expense (recovery)(1) $ 5,243$ (4,856) $ (10,212)$ (8,657) Net income (loss) attributable to shareholders(1) $ 7,075 $ (12,610) $ (33,771) $ (6,746) Basic net income (loss) attributable to shareholders per share(1) $ 0.02$ (0.04) $ (0.10)$ (0.02) Diluted net income (loss) attributable to
shareholdersper share(1) $ 0.02 $ (0.04)		$ (0.10) $ (0.02)

(1) Amounts for the three months and year ended December 31, 2019 have been restated. Refer to the “Voluntary Change in Accounting Policy”.

Revenue

Revenue increased by 3% to $274.9 million in the fourth quarter of 2020 compared to $266.2 million for the same period of 2019. The increase was a result of a full quarter of refined products revenue with the acquisition of PGR in November 2019. PGR achieved strong utilization and throughput in the fourth quarter of 2020 which was driven by continued diesel demand in the Prince George area. The increase in revenue was partially offset by a decline in marketing and extraction revenue as a result of lower crude oil prices, which also had a corresponding decrease in operating costs.

Net throughput volumes at Tidewater’s gas processing and extraction facilities averaged approximately 408 MMcf/day during the fourth quarter of 2020, a 9% decrease as compared to 450 MMcf/day for the same period of 2019 primarily as a result of lower demand pull in the fourth quarter on the Pioneer Pipeline which is protected by a take-or-pay contract.

During the year ended December 31, 2020, the Corporation generated revenue of $979.4 million, an increase of 41% compared to $692.3 million for 2019. The increase year over year was the result of increased refined products revenue due to the acquisition of PGR, and the commissioning of the Pipestone Gas Plant. These increases were offset by reduced marketing and extraction revenue as a result of lower commodity prices and the disposal of the Corporation’s trucking and retail propane subsidiaries.

Net throughput volumes at Tidewater’s gas processing and extraction facilities for the year ended December 31, 2020 averaged approximately 425 MMcf/day, a 6% increase from the average net throughput volumes of 400 MMcf/d for the year ended December 31, 2019 due to the commissioning of the Pipestone Gas Plant offset by the sale of non-core gas plants.

Despite the volatility in commodity prices, the Corporation’s assets act as natural hedges in varying commodity price environments. Tidewater’s gas storage and extraction assets perform well in low gas price environments, while gathering and processing perform better in medium to high price environments. Tidewater also engages in liquids blending. It operates facilities at Brazeau, Acheson, Pipestone and Valhalla, allowing it to transport, process and blend various butane and condensate streams. Margins are earned by blending products of lower value into higher value products. As a result of these transactions, Tidewater takes advantage of the price and quality differentials between various product streams. Additionally, Tidewater is well positioned to serve NGL and crude oil markets due to trucking and rail logistics infrastructure allowing customers to capture enhanced product pricing to improve netbacks on their products.

Overall, the integration of Tidewater’s infrastructure means that it can take advantage of available resources to benefit from differentials in commodity prices through its processing facilities, fractionation, straddle, storage and transportation infrastructure.

Operating expenses

Operating expenses for the fourth quarter of 2020 were $228.5 million, a decrease of 2%, compared to $233.9 million for the fourth quarter of 2019. The decrease was a result of lower cost for feedstock purchases and lower crude oil prices for marketing and extraction purchases.

Operating expenses for the year ended December 31, 2020 increased 36% to $819.7 million, compared to $604.1 million for 2019 primarily resulting from the Corporation’s growth from the acquisition of PGR and commissioning of the Pipestone Gas Plant in the fourth quarter of 2019. At the Pipestone Gas Plant, thirdparty pipeline infrastructure was not in service until the end of the first quarter of 2020 leading to higher expenses for trucking NGL products. Start-up costs also contributed to the increase in operating costs. Higher labour, power, catalyst, chemical costs, repairs, maintenance and property taxes, driven by the growth in Tidewater’s business, also contributed to the increase.

The increased weighted average cost of the Corporation’s commodity products was partially offset by realized hedging gains related to the Corporation’s risk management policy to minimize exposure from fluctuations in commodity prices.

General and administrative

General and administrative (“G&A”) expenses for the three months ended December 31, 2020 were $5.9 million, compared to $4.2 million for the same period of 2019. During the year ended December 31, 2020 G&A expenses were $18.7 million, compared to $14.4 million for 2019. The increases in G&A expenses between the 2020 and 2019 periods were primarily due to higher corporate employee costs driven by expansion of the Corporation’s operations through organic growth. Higher employee costs include salaries related to employees added to support new and existing operations and to support growth initiatives. Non-recurring costs of $0.4 and $1.7 million were included in G&A expenses for the three months and year ended December 31, 2020, respectively, relating to one-time legal and severance costs during 2020. Non-recurring costs of $0.4 million and $1.2 million were included in G&A expenses for the three months and year ended December 31, 2019, respectively, relating to one-time legal and severance costs during 2019.

Share-based compensation

Share-based compensation expenses for the three months ended December 31, 2020 was $1.5 million, compared to $2.1 million for the same period of 2019. The decrease for the three months ended December 31, 2020 compared to the same period of 2019 was due to the reduced value of share awards issued in the year. Share-based compensation for the year ended December 31, 2020 was $7.1 million, compared to $9.5 million for the same period of 2019. The decrease in share-based compensation for the year ended December 31, 2020 compared to December 31, 2019 primarily relates to revisions to the Corporation’s Restricted Share Units (“RSUs”) plan whereby, prior to May 14, 2019, the Corporation’s RSUs were accounted for using the liability accounting method. Under the new amendments, RSUs are accounted for using the equity method.

Depreciation

Depreciation for the three months ended December 31, 2020 was $22.1 million, compared to $19.0 million for the same period of 2019. During the year ended December 31, 2020, depreciation was $85.6 million, compared to $60.3 million for 2019. The increase in depreciation in both comparative periods was due to year over year growth of the Corporation’s asset base with the addition of PGR, commissioning of the Pipestone Gas Plant and additions to its right-of-use assets, mostly relating to the Corporation’s rail car and downstream leases.

Finance costs and other

Finance costs and other for the three months ended December 31, 2020 were $14.7 million, compared to $12.7 million for the same period of 2019. Finance costs and other for the year ended December 31, 2020 were $68.6 million, compared to $27.4 million for the year ended December 31, 2019. Increased finance costs during the three months and year ended December 31, 2020 were primarily due to higher interest expense resulting from the increased bank debt related to the PGR acquisition, the 2019 capital program and the issuance of convertible debentures during the third quarter of 2019.

Realized gain on derivative contracts

The Corporation uses physical and financial forward contracts to protect operating income and the value of its crude oil, natural gas, NGL, and refined product inventories to mitigate volatility in commodity prices. Overall, the Corporation hedges from 50% to 100% of all commodity price exposure outside PGR.

Realized gain on derivative contracts for the three months ended December 31, 2020 was $6.1 million, compared to a realized gain of $2.1 million in the same period of 2019. The increase is a result of additional crude oil contracts added and maturing during the quarter as compared to the previous quarter. The realized gain on derivative contracts for the year ended December 31, 2020 was $30.3 million, compared to a realized gain of $34.0 million in the comparative period of 2019. The decrease was a result of WCS contracts maturing in 2019.

Unrealized gain/loss on derivative contracts

Unrealized non-cash gain on derivative contracts for the three months ended December 31, 2020 was $5.7 million, compared to a loss of $9.4 million for the three months ended December 31, 2019. The increase is primarily due to the recovery of forward crude oil prices during the fourth quarter of 2020. During the year ended December 31, 2020, the Corporation incurred an unrealized non-cash loss on derivative contracts of $41.7 million, compared to a loss of $15.1 million during 2019. The decrease was primarily due to additional crude oil and refined product contracts added during the first quarter.

The majority of the Corporation’s unrealized loss on derivative contracts relate to its long-term contracts, with varying terms up to three years in the future, to protect a portion of its feedstock supply cost at PGR. Fair values of these derivative contracts fluctuate depending on the commodity prices and can impact profit in the form of realized or unrealized gains and losses, offset by physical inventories, that can change significantly period over period. A portion of the unrealized losses for the year ended December 31, 2020 relate to WTI/MSW oil differential hedges that are used to protect PGR feedstock costs over a three-year period.

Also included in the unrealized loss for the quarter are interest rate contracts. The Corporation hedges its borrowing costs by fixing the interest rate on its floating credit facilities. The significant decline in interest rates resulted in an unrealized loss for the quarter and for the year, partially offset by a decline in interest expense for the quarter and in subsequent periods.

At December 31, 2020, the fair value of the Corporation’s derivative contracts was a net liability of $45.1 million, as compared to a net liability of $3.3 million at December 31, 2019 of which $31.9 million is classified as long-term.

The fair value of the net derivative contract asset or liability is the estimated value to settle the outstanding contracts at a point in time. Accordingly, the unrealized gains or losses on these financial instruments are recorded directly to the statement of net income (loss) and can fluctuate materially quarter-over-quarter with price volatility. In general, the increase or decrease in the fair value of the derivative contracts is intended to mitigate fluctuations in the value of inventories and future commitments and protect operating income. Unrealized gains and losses on derivative contracts do not impact net cash provided by operating activities or distributable cash flow. Actual gains or losses realized on eventual cash settlement can vary materially due to subsequent fluctuations in commodity prices as compared to the valuation assumptions. The Corporation’s risk management policy is designed to limit fluctuations in the overall business where gains and losses on derivative contracts are inherently offset in the Corporation’s asset base.

Realized gain/loss on sale of assets

On March 25, 2020, the Corporation disposed of its common shares of Tidewater Propane Inc. for proceeds of approximately $8.4 million. After adjustments for net working capital and deferred income tax liabilities, a gain of $3.0 million was recorded on the sale.

On August 17, 2020, the Corporation disposed of its common shares of Tidewater Logistics Ltd. for proceeds of approximately $6.5 million. After adjustments for net working capital and deferred income tax liabilities, a gain of $2.9 million was recorded on the sale.

On September 2, 2020, the Corporation disposed of certain non-core assets. The Corporation recognized a non-cash loss of $16.8 million on these dispositions.

Income from equity investments

The Pipestone Gas Storage Facility continued to perform well during the year with injection levels reaching a peak of 152,000 MMcf/day during the third quarter. The facility successfully met customer park-andloan commitments while building up inventory levels in anticipation of next winter’s withdrawal obligations. The Alberta natural gas market in the fourth quarter was characterized by relatively low price volatility which reduced revenues during the fourth quarter and resulted in lower contributions from the storage facility during the year ended December 31, 2020 as compared to the previous year.

Deferred income tax expense (recovery)

During the three month period ended December 31, 2020, the Corporation recognized a deferred income tax expense of $5.2 million, compared to a recovery of $4.9 million for the same period of 2019, largely due to positive net income before tax for the three months ended December 31, 2020 compared to a net loss for the three months ended December 31, 2019. For the year ended December 31, 2020, the Corporation recognized a deferred income tax recovery of $10.2 million, compared to $8.7 million for 2019. The increased recovery is attributable to an increase in the net loss before tax for the year ended December 31, 2020 as compared to the year ended December 31, 2019.

Net income (loss) attributable to shareholders

During the three months ended December 31, 2020, the Corporation generated net income attributable to shareholders of $7.1 million, compared to a net loss attributable to shareholders of $12.6 million for the same period of 2019. The increase in net income was the result of non-cash unrealized gains on derivative contracts in 2020 and higher operating income.

Net loss attributable to shareholders for the year ended December 31, 2020 was $33.8 million, compared to net loss attributable to shareholders for the same period of 2019 of $6.7 million. The net loss was primarily the result of a $26.7 million increase in unrealized loss on derivative contracts, and increased finance costs of $41.1 million, as discussed above.

Net income (loss) per share attributable to shareholders

Net income per share attributable to shareholders - basic and diluted was $0.02 per share for the fourth quarter of 2020, compared to a net loss per share attributable to shareholders - basic and diluted of $0.04 for the same period of 2019. Net loss per share attributable to shareholders - basic and diluted for the year ended December 31, 2020 was $0.10 compared to net loss per share attributable to shareholders of $0.02 for the same period of 2019. The increase in net loss per share attributable to shareholders for the 2020 periods was primarily due to higher unrealized loss on derivative contracts and increased finance costs. Dividends declared per share were $0.01 per share in the fourth quarter of 2020, consistent for each quarter of 2020 and 2019.

OUTLOOK AND CORPORATE UPDATE

Tidewater is well positioned to weather the current economic environment and remains focused on cash flow generation, increasing liquidity and reducing leverage. Tidewater is positive about the longer-term outlook for commodity prices in 2021 and beyond. Increased investor interest in the energy sector with the expectation of a global recovery along with fiscal stimulus programs has increased the attractiveness of commodities during the first quarter of 2021. Improving crude oil, natural gas, NGL and refined product pricing in the first quarter of 2021 is encouraging for the continuing strength of the Corporation’s business.

Tidewater’s forecasted payout ratio is expected to range from 20% to 25% with the remainder of Distributable Cash Flow used to reduce leverage. The proceeds from the Pioneer Transaction will significantly reduce leverage with net proceeds of approximately $135 million. A large portion of Tidewater’s cashflow is generated from take-or-pay contracts and long-term agreements with over 50% generated from investment grade counterparties. Tidewater remains committed to its target net debt to annualized Adjusted EBITDA of approximately 3.0x – 3.5x in 2021 with the completion of the Pioneer Transaction.

Prince George Refinery

PGR is a 12,000 bbl/day light oil refinery that predominantly produces low sulphur diesel and gasoline to supply the greater Prince George region. PGR has significant onsite storage capacity of greater than 1.0 MMbbl and flexible logistics, with pipeline, rail and truck connectivity in place. The Prince George region is generally in short supply of refined products and the refinery’s location within the region makes it a critical piece of infrastructure with a significant logistical advantage to address demand in northern British Columbia.

PGR has significant advantages given its location as the Prince George market faces logistical and economic challenges given transport costs and the lack of offloading facilities in the area. Additionally, the refinery supplies the majority of the regional demand, which is comprised of major local industries such as forestry, mining and oil and gas.

During the fourth quarter of 2020, total throughput exceeded the refinery’s nameplate capacity at approximately 12,187 bbl/day, consistent with the third quarter of 2020.

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Daily Throughput (BBL / Day) Refinery Yield [(1)]
12,000 12% 15% 13% 12%
10,000
42% 42% 44% 39%
8,000
6,000
46% 43% 43% 49%
4,000
2,000
Q1 Q2 Q3 Q4
- Diesel Gasoline Other 2
Q1 Q2 Q3 Q4
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(1) Refinery yield Includes crude and intermediates.

(2) Other refers to heavy fuel oil (HFO), LPG and feedstock consumed to fuel the refinery.

Tidewater’s refining margins are largely driven by commodity prices, particularly the cost of crude feedstock and other raw materials, along with market prices for refined products. During the fourth quarter of 2020, Tidewater realized improved margins on diesel as a result of increased pricing which was partially offset by lower demand due to the implementation of new COVID-19 restrictions in December. Gasoline prices and volumes decreased slightly quarter over quarter as a result of seasonal demand. Overall, margins at the refinery increased approximately 10% from the third quarter as a result of strong diesel pricing.

Tidewater is encouraged by the resilience of the PGR asset in an unprecedented time with full-year crack spreads holding steady around $55/bbl. This demonstrates the refinery's long-term value in servicing the markets in which it operates.

Tidewater is progressing on its Canola co-processing project and expects it to be online in late 2021. The project is supported by the BC government and will produce both renewable gasoline and renewable diesel.

The Corporation continues to evaluate various renewable initiatives at PGR. These include expanding existing hydrogen assets, renewable hydrogen and the potential for a large-scale renewable diesel project with current support from the provincial government. Renewable diesel results in an approximate 80% - 90% reduction in greenhouse gas (“GHG”) emissions compared to regular conventional diesel and performs better in colder temperatures as compared to biodiesel.

Tidewater is also pursuing numerous low capital and high rate of return debottleneck and optimization opportunities within its downstream business unit.

Pipestone Gas Plant

The Pipestone Gas Plant is designed to process approximately 100 MMcf/day of sour natural gas. This asset includes two acid gas injection wells, a saltwater disposal well, and sales gas pipelines directly connected to the Pipestone Gas Storage Facility, as well as the Alliance and TC Energy pipeline systems. The facility is also pipeline connected to Pembina for the C2+ and C5+ liquid streams.

The Pipestone Gas Plant processed an average volume of 72 MMcf/day in the fourth quarter of 2020 which is consistent with the third quarter of 2020. Facility availability for the quarter averaged 77% which was impacted by an unplanned outage in early October. The Pipestone Gas Plant is fully contracted with over 80% committed on take-or-pay arrangements.

Pioneer Pipeline

The Pioneer Pipeline is currently jointly owned and operated by Tidewater and TransAlta. The asset is held for sale, subject to closing of the Pioneer Transaction which is subject to customary conditions in a transaction of this nature including regulatory approvals by the Alberta Utilities Commission and the Alberta Energy Regulator. Following the execution of the purchase and sale agreement, the parties filed applications for regulatory approval. Regulatory approval is anticipated in the second quarter of 2021 and Tidewater remains proactive in its efforts to complete the transaction on a timely basis.

Upon the closing of the Pioneer Transaction, the Pioneer Pipeline will be integrated into NOVA Gas Transmission Ltd.’s (“NGTL”) and ATCO’s Alberta integrated natural gas transmission systems to provide reliable natural gas supply to TransAlta’s power generating units at Sundance and Keephills.

Tidewater has entered into a Project and Expenditure Authorization Agreement with NGTL at the Rat Creek West Meter Station for the natural gas liquids extraction service (OS-Ext) that will allow Tidewater

to extract higher value liquids from the natural gas stream prior to delivery of natural gas at the TransAlta facilities. Tidewater does not expect any facility modifications or capital expenditures to be required to implement this service. It is expected that with this service Tidewater will be able to materially increase throughput subject to market conditions. It is anticipated that this service will commence concurrent with the close of the Pioneer Transaction.

Brazeau River Complex and Fractionation Facility

The BRC is a core asset for Tidewater, offering a full suite of services to producers, including C2, C3, C4 and C5 pipeline connections, NGL fractionation capacity, sweet and sour deep-cut gas processing capability, truck loading and offloading facilities, natural gas storage facilities and two natural gas egress solutions given the BRC’s connection to the NGTL system and the Pioneer Pipeline.

Throughput at the BRC for the fourth quarter of 2020 was in-line with the previous quarter. Overall supply volumes at the fractionation facility decreased approximately 450 bbl/day in the fourth quarter of 2020 relative to the prior quarter largely driven by slightly lower gas supply and stable truck in volumes.

Due to the recent improvement in AECO gas prices, the Corporation continues to see increased activity in the Deep Basin area near the BRC, which has led to the tie-in of additional raw gas volumes to the BRC from a mid-sized producer which came online in the fourth quarter of 2020, and strong production volumes amongst the existing customer base. Tidewater works diligently with producers to improve netbacks by fully utilizing the BRC’s facilities.

Natural Gas Storage

Tidewater operates natural gas storage reservoirs at three different facilities: Dimsdale Paddy A (Pipestone Gas Storage Facility), Brazeau Nisku F, and Brazeau Nisku A. The Pipestone Gas Storage Facility and Brazeau Nisku A are owned through joint ventures with a private Canadian entity and are accounted for as equity investments.

After a successful summer season with expanded injection capabilities, the Pipestone Storage Facility exited October with record inventories in the ground. Similarly, both Brazeau Nisku A and Brazeau Nisku F storage pools continued to build inventories into October while continuing to meet the Pioneer Pipeline delivery obligations and realizing liquids value benefit through cycling.

The Alberta natural gas market in the fourth quarter was characterized by relatively low price volatility. While there was early price strength in the second half of October that allowed the facilities to begin withdrawal activity early, mild weather generally kept prices range-bound between $1.90 - $2.50 CAD/GJ with levels trending lower through November and December.

The facilities continued to perform well in the period as Tidewater moved into withdrawal mode. A well reactivation project at Brazeau Nisku A performed in the fourth quarter further increased reservoir deliverability.

The Pipestone Gas Storage Facility is fully contracted with take-or-pay contracts spanning up to eightyears with multiple investment grade counterparties. The facility represents a significant contribution to Tidewater’s fee-for-service gas storage business and offers producers at the Pipestone Gas Plant significant optionality where the plant has three egress solutions including connections to the TC Energy and Alliance systems and gas storage.

CAPITAL PROGRAM

During 2019, Tidewater commissioned three of the largest capital projects in the Corporation’s history: the Pioneer Pipeline, Pipestone Gas Plant and Pipestone Gas Storage Facility. The Corporation’s focus in 2020 was on small-scale optimization and commissioning projects.

Tidewater’s 300 bbl/day Canola co-processing project at PGR is expected to come online in the fourth quarter of 2021 which will produce both renewable diesel and gasoline. Total capital for the project is approximately $10 million and includes significant support from the BC government.

Tidewater’s focus over the next 12 months is to employ the related cashflow generated from its 2019 large completed capital projects and PGR, as well as proceeds from the Pioneer Transaction, towards deleveraging with a target net debt to Adjusted EBITDA ratio of approximately 3.0x – 3.5x. To date, Tidewater has not committed to a significant capital program in 2021, however continues to evaluate smaller capital projects with the potential to generate returns in excess of 50%.

SELECTED ANNUAL INFORMATION

The following table presents selected annual financial information for Tidewater:

			Year ended December 31,	Year ended December 31,	Year ended December 31,
(In thousands of Canadian dollars, except per share information)		2020		2019		2018
Revenue	$	979,406	$	692,268	$	324,290
Net income (loss) attributable to shareholders(1)		(33,771)		(6,746)		29,518
Net income (loss) per share attributable to
shareholders – basic and diluted(1)		(0.10)		(0.02)		0.09
Dividends declared		13,538		13,343		13,184
Dividends declared per share		0.04		0.04		0.04
Weighted average common shares outstanding -
basic		338,244		332,898		329,459
Weighted average common shares outstanding -
diluted		350,337		342,847		339,942
Total assets(1)		1,863,655		1,829,584		1,092,538
Total non-current liabilities(1)		1,097,912		1,043,557		432,077

(1) Amounts for years ended December 31, 2019 and December 31, 2018 have been restated. Refer to the “Voluntary Change in Accounting Policy”.

SUMMARY OF QUARTERLY RESULTS

The following table presents a summary of Tidewater’s quarterly results for the last eight quarters:

(In thousands of Canadian dollars, except per share information)	(In thousands of Canadian dollars, except per share information)	(In thousands of Canadian dollars, except per share information)
	Q4 2020 Q3 2020 Q2 2020	Q1 2020
Revenue $ 274,913 $ 273,461 $ 178,568 $ 252,464 Net income (loss) attributable to shareholders(1) 7,075 (3,820) 1,114 (38,140) Net income (loss) per share attributable to shareholders – basic(1) 0.02 (0.01) 0.00 (0.11) Net income (loss) per share attributable
to shareholders – diluted(1) Adjusted EBITDA(2)	0.02 (0.01) 0.00 (0.11) $ 48,778 $ 47,602 $ 41,873 $ 41,506

(1) Amounts for the three months and year ended December 31, 2019 have been restated. Refer to the “Voluntary Change in Accounting Policy”. (2) Refer to “Non-GAAP Measures”.

(In thousands of Canadian dollars, except per share information)	(In thousands of Canadian dollars, except per share information)
Q4 2019 Q3 2019 Q2 2019	Q1 2019
Revenue $ 266,247 $ 147,045 $ 155,311 $ 123,665 Net income (loss) attributable to shareholders(1) (12,610) 12,489 (1,597) (5,028) Net income (loss) per share attributable to shareholders – basic(1) (0.04) 0.04 (0.00) (0.02) Net income (loss) per share attributable to shareholders – diluted(1) (0.04) 0.03 (0.00) (0.02) Adjusted EBITDA(2) $ 39,987 $ 25,496 $ 21,786 $ 22,404

(1) Amounts for the three months and year ended December 31, 2019 have been restated. Refer to the “Voluntary Change in Accounting Policy”.

(2) Refer to “Non-GAAP Measures”.

During 2020, Tidewater’s results were impacted by the following factors and trends:

four full quarters of revenue from PGR;
higher net finance costs impacting earnings associated with debt related to 2019 financing of acquisitions and growth projects;
larger unrealized losses on derivative contracts due to significant decrease in forecasted crude prices experienced in March 2020;
decrease in demand for refined product as a result of COVID-19 during March and April; and
the market impacts from the COVID-19 pandemic creating further volatility and fluctuations in overall prices and differentials.

During 2019, Tidewater’s results were impacted by the following factors and trends:

the PGR acquisition on November 1, 2019;
the commissioning of the Pipestone Gas Plant in September 2019 and Pioneer Pipeline in May 2019;
realized gains on derivatives due to settlement of crude oil hedges during the third and fourth quarters of 2019;
higher net finance costs impacting earnings associated with debt related to financing acquisitions and growth projects;
higher depreciation expense attributable to right-of-use asset additions as a result of IFRS 16 and full-quarter depreciation expense on Pipestone Gas Plant completed during the third quarter; and
lower Alberta tax rates following the enactment of Bill 3 in June 2019.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity Sources

The Corporation’s primary liquidity and capital resource needs are to fund ongoing capital expenditures, future growth opportunities, interest payments, working capital and a stable dividend.

The Corporation had the following contractual obligations as at December 31, 2020 and 2019:

December 30,	December 31,
2020	2019
(in thousands of Canadian dollars) Less than one year Greater than one year	Less than one year Greater than one year
Accounts payable and accrued liabilities $ 269,072 $ - Derivative contracts 13,549 32,291 Dividend payable 3,391 - Interest payable 1,339 - Lease liabilities and other 49,595 137,798 Bank debt - 664,587 Notes payable - 123,501 Convertible debentures - 67,430	$ 263,513 $ - 1,892 2,274 3,374 - 1,951 - 41,849 132,694 - 648,970 - 122,831 - 65,789
$ 336,946 $ 1,025,607	$ 312,579 $ 972,558

The Corporation’s Senior Credit Facility is used to provide financing for working capital, fund capital expenditures and acquisitions and for other general corporate purposes. As at December 30, 2020, total availability under the Corporation's Senior Credit Facility was $600 million. The Corporation has the ability to increase this limit to $650 million, subject to certain conditions. The Senior Credit Facility matures on August 23, 2022. In conjunction with the acquisition of PGR, Tidewater entered into a credit agreement that established a $100 million Second Lien Term Loan, subordinated to the Senior Credit Facility, which provided for only a single draw on the facility at the closing of the acquisition. The Second Lien Term Loan matures on October 31, 2022 and can be repaid prior to maturity with net proceeds from an issuance of equity or equity like securities or high yield instruments.

The Corporation is required to meet certain financial covenants under its Senior Credit Facility and Second Lien Term Loan and is also subject to customary restrictions on its Senior Credit Facility, Second Lien Term Loan and its notes payable including restrictions on the granting of security, incurring indebtedness and the sale of its assets.

The key financial covenants include a consolidated debt to adjusted EBITDA ratio of less than or equal to 4.50:1; a consolidated first lien senior debt to adjusted EBITDA ratio of less than or equal to 3.50:1; and a consolidated Adjusted EBITDA to interest coverage ratio of greater than or equal to 2.50:1. The Corporation may include up to 15% of projected annual adjusted EBITDA attributable to material projects currently under construction based on certain criteria. At December 31, 2020, the Corporation was in compliance with its financial covenants. Debt covenant ratios are tested on a trailing-twelve-month basis.

Adjusted EBITDA is defined under the Senior Credit Facility as net income (loss) plus finance costs and other, deferred income tax expense, depreciation, unrealized loss (gain) on derivative contracts, sharebased compensation, foreign exchange (gains) losses, gains/losses on asset disposal, transaction costs and non-recurring transactions. Consolidated debt is defined as first and second lien debt and notes payable. First lien debt is comprised of amounts drawn under the Senior Credit Facility. Interest coverage ratio is calculated as Adjusted EBITDA divided by interest expense prior to capitalized interest.

With its net cash generated by operating activities, combined with the proceeds on the Pioneer Transaction, Tidewater will significantly reduce its leverage in 2021. Tidewater anticipates that net cash provided by operating activities, cash flow generated from growth projects, and cash available from Tidewater’s Senior Credit Facility and other sources of financing will be sufficient to meet its obligations and financial commitments and will provide sufficient funding for anticipated capital expenditures. The current financial position of the Corporation is able to provide sufficient financial flexibility and resources to manage its liquidity requirements. Accordingly, over the short-term the Corporation expects to maintain sufficient liquidity sources to fund its ongoing operations, debt service requirements, dividend payments and working capital needs. However, depending on the duration and severity of the COVID-19 pandemic, Tidewater's ability to access financing in the capital markets could be impacted.

As the Corporation de-levers in 2021, it will continue to explore multiple funding options, including restructuring the Second Lien Term Loan and notes payable in 2021 (due in the fourth quarter of 2022) with a goal to reduce borrowing costs and extend maturity dates. The Corporation continues to work with credit capital market advisors, within its credit syndicate, on a plan.

The most significant exposure faced by the midstream business is related to declines in production volumes. With Tidewater’s facilities located in significant natural gas supply areas, high barriers to entry of new participants and current and future take-or-pay contracts and gas storage facilities, net cash provided by operating activities is anticipated to remain stable and be sufficient to support operations, fund sustaining capital expenditures and generate distributable cash flow. The financial performance of Tidewater's refining operations is impacted by the margin between refined product prices and the prices of refinery feedstock. Refining margins are subject to seasonal factors as production changes to match seasonal demand. Refining margins were impacted by the COVID-19 pandemic earlier in 2020 but have since rebounded as refined product demand has increased.

Due to the nature of the energy midstream industry, budgets are regularly reviewed with respect to the success of the expenditures and other opportunities that become available to the Corporation. Tidewater’s actual expenditures may vary depending on a variety of factors, including the availability of equipment and personnel, unexpected expenses, delays in the receipt of necessary regulatory approvals, permits and licenses, and the success of Tidewater’s business development activities, among other variables.

Cash Flow Summary

The following table summarizes the Corporation’s sources and uses of funds for the three months and years ended December 31, 2020 and 2019 from continuing operations:

Cash flows provided by (used in) Three months ended December 31, Year ended December 31,	Cash flows provided by (used in) Three months ended December 31, Year ended December 31,	Cash flows provided by (used in) Three months ended December 31, Year ended December 31,	Cash flows provided by (used in) Three months ended December 31, Year ended December 31,	Cash flows provided by (used in) Three months ended December 31, Year ended December 31,
(in thousands of Canadian dollars)	2020	2019	2020	2019
Operating activities Financing activities Investingactivities	$ 54,609$ 68,219		$ 205,574$ 91,520 $ (101,201) $ 637,972 $ (100,227) $ (729,674)
	$ (32,746) $ 294,962 $ (22,861) $ (362,310)

Net Cash Provided by Operating Activities

Net cash provided by operating activities was $54.6 million for the three months ended December 31, 2020, compared to net cash provided by operating activities of $68.2 million for the three months ended December 31, 2019. The decrease is a result of increased inventory held in storage at December 31, 2020 as compared to September 30, 2020. Cash provided by operating activities will fluctuate quarter over quarter as a result of the amount of inventory purchased at PGR, the commodity prices at which inventory is bought and sold and seasonal demand.

For the year ended December 31, 2020, net cash provided by operating activities was $205.6 million, compared to net cash provided by operating activities of $91.5 million in 2019. The large increase is primarily due to additional operating cash flows from PGR and the Pipestone Gas Plant.

Net Cash Provided by (Used in) Financing Activities

Net cash used in financing activities was $32.7 million for the three months ended December 31, 2020, compared to net cash provided by financing activities of $295.0 million for the three months ended December 31, 2019. The decrease was a result of the acquisition of PGR in the fourth quarter of 2019 and the related increase in debt from the Second Lien Term Loan. Net cash used in financing activities was $101.2 million for the year ended December 31, 2020, compared to net cash provided by financing activities of $638.0 million for the year ended December 31, 2019. The reduction in net cash provided by financing activities in 2020 compared to 2019 is attributable to reduced draws on the Corporation’s credit facilities to fund its organic growth projects in 2019, the acquisition of PGR, and increased interest payments in 2020.

The Corporation continues to pay dividends on a quarterly basis at $0.01 per common share.

Net Cash Used in Investing Activities

Net cash used in investing activities was $22.9 million and $100.2 million for the three months and year ended December 31, 2020, respectively, compared to $362.3 million and $729.7 million for the three months and year ended December 31, 2019, respectively. The decrease in net cash used in investing activities was the result of reductions in capital expenditures from the Corporation’s 2019 capital program and proceeds received from the sale of non-core assets.

Capital Expenditures

The following table summarizes acquisitions, growth and maintenance capital expenditures for the three months and years ended December 31, 2020 and 2019:

		Three months	ended		Year ended	Year ended
		December	31,		December 31,
(in thousands of Canadian dollars)		2020	2019		2020	2019
Acquisition – Prince George Refinery	$	-	271,163	$	-	271,163
Growth capital		14,434	56,625		53,436	445,143
Maintenance capital		6,000	910		17,530	6,135
Total additions to property, plant and equipment as
per statement of cash flows	$	20,434	328,698	$	70,966	722,441

Growth Capital

Growth capital expenditures for the fourth quarter of 2020 were $14.4 million, compared to $56.6 million for the fourth quarter of 2019. In the current period, Tidewater’s growth capital has been focused on its small-scale optimization, debottlenecking and blending projects.

During the year ended December 31, 2020, growth capital was $53.4 million, compared to $445.1 million for the year ended December 31, 2019. The decrease period over period was due to the construction on the Pipestone Gas Plant, Pioneer Pipeline and Pipestone Gas Storage Facility projects in 2019. In 2020, Tidewater’s growth capital was focused on its small-scale optimization and commissioning projects.

Maintenance Capital

Tidewater places a high priority on the maintenance and upgrading of its assets to provide safe and reliable services to its customers. Maintenance capital expenditures for the three months ended December 31, 2020 were $6.0 million, compared to $0.9 million for the same period of 2019. Maintenance capital expenditures for the years ended December 31, 2020 and 2019 were $17.5 million and $6.1 million, respectively. The increase in maintenance capital is attributable to the increase in the Corporation’s asset base at December 31, 2020 compared to December 31, 2019 and the timing of planned maintenance programs.

CONTRACTUAL LIABILITIES AND COMMITMENTS

At December 31, 2020, the Corporation had commitments related to leased (right-of-use) assets, energy service fees, firm transportation contracts and long-term debt. Lease liabilities relate to office leases for the Corporation’s office space, rail tank cars, vehicles, field buildings, pipelines, various equipment leases and energy service arrangements. The firm transportation contracts relate to firm service contracts with TC Energy, Alliance, NGTL, Pembina and Capline ranging from one to ten years.

The Corporation had the following contractual obligations and commitments, including those recognized as leases, as at December 31, 2020:

Within one After one year but not more More than	Within one After one year but not more More than
(in thousands of Canadian dollars) year than fiveyears	fiveyears Total
Lease liabilities $ 51,576 $ 97,726 $ 94,883 $ 244,185 Bank debt(1) - 664,587 - 664,587 Notes payable interest(2) 8,437 8,437 - 16,874 Notes payable repayment(2) - 125,000 - 125,000 Convertible debentures interest(3) 4,125 12,737 - 16,862 Convertible debentures repayment(3) - 75,000 - 75,000 Firm transportation contracts(4) 41,183 175,198 278,265 494,646
Total $ 105,321 $ 1,158,685$ 373,148 $ 1,637,154

(1) The Corporation’s Senior Credit Facility is due August 23, 2022. The Second Lien Term Loan is due October 31, 2022.

(2) Fixed interest payments on notes payable. The notes payable mature on December 19, 2022.

(3) Fixed interest payments on convertible debentures. The convertible debentures mature on September 30, 2024.

(4) Fixed transportation contracts are presented gross of flow-through operating cost recoveries from customers.

The Corporation does not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on the Corporation’s financial performance. On occasion, the Corporation issues letters of credit in connection with transactions in which the counterparty requires such security. The Corporation has $45.0 million in letters of credit issued to facilitate commercial transactions with third parties and to support regulatory requirements. The letters of credit are issued under a separate facility from the Senior Credit Facility.

OUTSTANDING EQUITY

At March 10, 2021, Tidewater had the following outstanding common shares, RSUs, DSUs and options:

(In thousands)
Common shares	339,149
RSUs	11,568
DSUs	388
Options	14,723

TRANSACTIONS WITH RELATED PARTIES

Transactions with related parties are in the normal course of business and are recorded at market rates. The transactions with related parties during the three months and year ended December 31, 2020 are summarized in the following table:

(in thousands of Canadian dollars) Three months ended December 31, 2020	Year ended December 31, 2020
Related Party Revenue Operating expenses	Revenue Operating expenses
Highwood Oil Company Ltd.(1) $ 3 $ 237 Fireweed Energy Ltd. (2) - - Tidewater Brazeau Gas Storage LP(3) 893 535 Tidewater Pipestone Infrastructure LP(4) - -	$ 883 $ 587 - 4 3,526 2,444 - -
Total $ 896 $ 772	$ 4,409 $ 3,035

The related party balances included in the consolidated statement of financial position as at December 31, 2020 are summarized in the following table:

(in thousands of Canadian dollars)		As at December	31,
		Accounts		Accounts
Related Party		receivable		payable
Highwood Oil Company Ltd.(1)	$	800	$		-
Fireweed Energy Ltd. (2)		80			-
Tidewater Brazeau Gas Storage LP(3)		4,007			-
Tidewater Pipestone Infrastructure LP(4)		4,368			-
Total	$	9,255	$		-

(1) Highwood Oil Company Ltd. is a public company, of which Tidewater’s Chief Executive Officer, Joel Macleod, is a controlling shareholder. The related party transactions with Highwood Oil Company Ltd. consist of gas processing fee revenue, retail propane sales, trucking revenue and commodity purchases. As at March 10, 2021, the accounts receivable balance was $138.

(2) Fireweed Energy Ltd. is a private company, whose Chief Executive Officer, Steve Holyoake, is a member of Tidewater’s Board of Directors. The transactions involving Fireweed Energy Ltd. relate to gas processing fee revenue and non-operated plant expenses.

(3) Tidewater Brazeau Gas Storage LP is a joint arrangement partnership. The transactions involving Tidewater Brazeau Gas Storage LP consist of gas processing fee revenue, gas storage fee expenses and commodity purchases.

(4) Tidewater Pipestone Infrastructure LP is a joint arrangement partnership. The transactions involving Tidewater Pipestone Infrastructure LP consist of flow-through expenditures as operator of the facility.

For the three months and year ended December 31, 2020, Tidewater had no other transactions with related parties, except those pertaining to contributions to Tidewater's long-term incentive plans and remuneration of key management personnel in the ordinary course of their employment.

FINANCIAL INSTRUMENTS

Tidewater’s financial instruments consist of cash, accounts receivable, derivative contracts, investments, accounts payable and accrued liabilities, dividends payable, interest payable, bank debt, notes payable and convertible debenture liability. Tidewater employs risk management strategies and policies to ensure that any exposure to market risks are in compliance with the Corporation’s business objectives and risk tolerance levels.

The majority of Tidewater’s accounts receivable are due from entities in the oil and gas industry and are subject to normal industry credit risks. Approximately 50% of the Corporation's cashflow is derived from investment grade counterparties. Tidewater evaluates and monitors the financial strength of its customers in accordance with its credit policy. Financial assurances to mitigate and reduce risk may include letters of credit and prepayments. Due to COVID-19, the Corporation has increased its scrutiny on its credit monitoring procedures. With respect to counterparties for financial instruments used for hedging purposes, the Corporation limits its credit risk through dealing with recognized futures exchanges or investment-grade financial institutions and by maintaining credit policies which minimize overall counterparty credit risk. At December 31, 2020, total revenue attributable to Husky from all revenue streams accounted for approximately 38% of the Corporation’s revenue. Revenue earned from Husky was $86.6 million and $376.0 million for the three months and year ended December 31, 2020, respectively. The Corporation believes the credit risk associated with Husky is minimal.

The Corporation enters into certain financial derivative contracts to manage commodity price, power, interest and foreign exchange risk. These instruments are not used for speculative purposes. The Corporation has not designated its financial derivative contracts as effective accounting hedges, even though the Corporation considers all commodity, power, interest rate and foreign exchange contracts to be effective economic hedges. Such financial derivative contracts are recorded on the consolidated statement of financial position at fair value, with changes in the fair value being recognized as an unrealized loss (gain) on the consolidated statement of net income (loss) and comprehensive income (loss).

RISK MANAGEMENT

The Corporation continually works to mitigate the impact of risks to its business by identifying all significant risks so that they can be appropriately managed. The risks that may affect the business and operation of Tidewater are described within the Corporation's Annual Information Form (“AIF”), an electronic copy of which is available on Tidewater's SEDAR profile at www.sedar.com. The Corporation’s financial risks are discussed in note 24 of the Consolidated Financial Statements.

ENVIRONMENTAL REGULATION AND CLIMATE CHANGE

Tidewater is subject to a range of laws, regulations and requirements imposed by various levels of government and regulatory bodies in the jurisdictions in which it operates, including regulations that restrict or limit the release of emissions or specific substances.

While these legal controls and regulations affect numerous aspects of Tidewater's activities, including but not limited to, the operation of wells, pipelines and facilities, construction activities, emergency response, operational safety and environmental procedures, Tidewater does not believe that they impact its operations in a manner materially different from other comparable businesses operating in the same jurisdictions.

The Corporation’s facilities are subject to provincial and federal environmental legislation and regulations. Among other things, the environmental regulatory regime provides restrictions and prohibitions on releases or emissions of various substances produced in association with certain oil and natural gas industry operations. Environmental regulation affects the operation of facilities and limits the extent to which facility expansion is permitted. In addition, legislation requires that facility sites and pipelines be abandoned and reclaimed to the satisfaction of provincial authorities and local landowners. A breach of such legislation may result in the imposition of fines, the issuance of clean-up orders or the shutting down of facilities and pipelines.

Greenhouse gases, primarily carbon dioxide and methane emissions, are subject to regulatory reporting requirements as well as limitations in the jurisdictions in which Tidewater operates. Tidewater is compliant with the Alberta regulatory framework under the Technology Innovation and Emissions Regulation (“TIER”). TIER applies to facilities that emit 100,000 tonnes or more of greenhouse gases in 2016 or in any subsequent year as well as the aggregate of small conventional oil and gas facilities. Emissions reduction obligations are determined according to a facility-specific benchmark approach, and high-performance benchmark approach.

As of January 1, 2020, facilities that meet criteria for inclusion as well as those that have opted into TIER have been granted equivalency with the Environment and Climate Change Canada (“ECCC”) and will not be subject to the Federal Fuel Charge under the Greenhouse Gas Pollution Pricing Act (“GGPPA”).

Tidewater is also compliant with the British Columbia Greenhouse Gas Emission Reporting Regulation which applies to facilities that emit 10,000 tonnes or more of greenhouse gases per year. Other applicable regulations that limit greenhouse gas emissions include the Low Carbon Fuel Standard to which fuel supply is regulated in BC. Economic incentives, together with the price signal created by the BC carbon tax, work to drive innovation and reduce greenhouse gas emissions from Tidewater operations in BC. This includes a carbon credit market, CleanBC Program funding for applicable projects, and a CleanBC Incentive Fund that provides incentive payments according to a sector-based benchmark approach.

Tidewater continuously monitors legislative initiatives and overall regulatory trends across Canada and the U.S. so it is aware of potential developments that could affect its business and operations. The Corporation is closely monitoring these evolving GHG regulations to ensure it has a thorough understanding of the regulations, as they continue to develop at both the provincial and federal levels where the Corporation operates. In anticipation of increased compliance costs as a result of these regulatory changes, Tidewater is developing a Corporate GHG and Carbon Strategy with industry leading professionals to reduce its carbon footprint, reduce GHG compliance costs and mitigate future increased financial risk. Tidewater has forecasted out several years of future compliance obligation costs which will be incorporated into its annual budget.

ENVIRONMENTAL, SOCIAL AND GOVERNANCE

Tidewater remains committed to improving its Environmental, Social and Governance (“ESG”) performance and disclosure by reducing emissions with responsible and efficient energy infrastructure investment, enhancing environmental performance and improving disclosure through the posting of Tidewater’s ESG metrics on its website. In November 2020, as part of its commitment to enhancing disclosures, Tidewater published a significant increase in ESG metrics and corporate policy disclosures

which highlight several improving trends. This information is available at www.tidewatermidstream.com/esg/. Under this section, Tidewater has provided an overview of its recent ESG accomplishments, identified key relevant metrics to track, recognized improvement opportunities, and published goals to improve overall sustainability.

Tidewater continues to advance its ESG performance and is in the process of creating its inaugural ESG report. The ESG Management Committee is targeting to publish this report within the next twelve months, which will provide incremental disclosures on ESG practices, performance trends, and other material items which will drive the success of Tidewater’s long term ESG goals.

In line with Tidewater’s commitment to actively improve the quality of the communities in which we work and live, Tidewater is pleased to be recognized as the first and founding partner of Project Forest. This initiative is a non-profit that is focused on rewilding local landscapes to capture carbon naturally by bringing likeminded, environmentally conscious organizations together to plant trees and create forests. For more information related to Project Forest please visit www.projectforest.ca.

In January 2021, the Government of Canada’s $750 million Emissions Reduction Fund endorsed two small scale Tidewater projects given their goal to eliminate or lower routine venting of methane rich natural gas. This will result in a reduction of GHG emissions with the projects expected to be online by the end of 2021.

With Tidewater’s integrated network of infrastructure assets, it is well positioned to be an impactful contributor in reducing GHG emissions. A key contribution includes the construction and operation of the Pioneer Pipeline, which provided the infrastructure for TransAlta to convert their coal fired power generation stations to clean natural gas provided by the BRC. Further, PGR is one of the only refineries in Western Canada that can utilize renewables to reduce its carbon footprint including canola oil, biodiesel and ethanol.

For a detailed discussion of environmental regulations that affect Tidewater, political and legislative development as they relate to climate change and the risks associated therewith, see the Corporation’s AIF available at www.sedar.com.

CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES

Certain accounting policies require that management make appropriate decisions with respect to the formulation of estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Management reviews its estimates on a regular basis. The emergence of new information and changed circumstances may result in actual results or changes to estimates that differ materially from current estimates. The Corporation’s use of estimates and judgments in preparing the annual consolidated financial statements is discussed in note 2 of the consolidated financial statements for the year ended December 31, 2020.

The full extent of the COVID-19 pandemic to the global economy remains unknown at this time and to date has resulted in extreme volatility in global financial markets. While vaccines are beginning to be distributed, there is ongoing uncertainty as to the timing of the vaccine. Fiscal stimulus programs are also showing signs of restraint. As a result, there is significant uncertainty as to the extent and duration of the global economic slowdown. The Corporation applied judgment and will continue to assess the situation in determining the impact of the significant uncertainties created by these events and conditions on the carrying amounts of its assets and liabilities.

CONTROL ENVIRONMENT

Disclosure Controls and Procedures (“DC&P”)

The Corporation's Chief Executive Officer and Chief Financial Officer have designed, or caused to be designed under their supervision, disclosure controls and procedures (“DC&P”), as defined by National Instrument 52-109 – Certification of Disclosure in Issuers’ Annual and Interim Filings (“NI 52-109”), to provide reasonable assurance that material information relating to the Corporation is made known to them by others, particularly during the period in which the annual filings are being prepared, and information required to be disclosed by the Corporation in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation. The Corporation’s management, including the Chief Executive Officer and Chief Financial Officer, evaluate the effectiveness of the Corporation’s DC&P annually.

Internal Controls Over Financial Reporting (“ICFR”)

Tidewater’s Chief Executive Officer and Chief Financial Officer are responsible for establishing and maintaining internal control over financial reporting (“ICFR”). They have as at the financial year end December 31, 2020, designed ICFR, or caused it to be designed under their supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. The control framework used by the officers to design the Corporation’s ICFR is the Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations.

Management of the Corporation, including the Chief Executive Officer and Chief Financial Officer, have evaluated the effectiveness of the Corporation’s ICFR as at December 31, 2020. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that ICFR are effective as of the end of the year, in all material respects.

The Corporation’s Chief Executive Officer and Chief Financial Officer are required to disclose any change in the ICFR that occurred during the most recent period that has materially affected, or is reasonably likely to materially affect, the Corporation’s ICFR. No material changes in the ICFR were identified during the period ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Corporation’s ICFR. It should be noted that while the Chief Executive Office and Chief Financial Officer believe that the Corporation’s design of DC&P and ICFR provide a reasonable level of assurance that they are effective, they do not expect that the control system will prevent all errors and fraud. A control system, no matter how well conceived or operated, does not provide absolute assurance, but rather is designed to provide reasonable assurance that the objective of the control system is met. The Corporation’s ICFR may not prevent or detect all misstatements because of inherent limitations. Additionally, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with the Corporation’s policies and procedures.

VOLUNTARY CHANGE IN ACCOUNTING POLICY

Under the Corporation’s previous accounting policy for decommissioning liabilities, the present value of the liability was calculated at each reporting date using a risk-free interest rate. Effective December 31, 2020, the Corporation voluntarily changed this accounting policy to utilize a credit adjusted risk-free interest rate instead. The Corporation believes that using a credit-adjusted risk-free rate results in more relevant information for the users of the Corporation’s consolidated financial statements as this methodology is a more accurate representation of the value at which such liabilities could be transferred to a third party, is a better indicator of the risk associated with such liabilities and increases the comparability of the Corporation’s financial statements to peer entities.

This change in accounting policy was applied retrospectively and the effect of this is described below. In addition, comparative amounts in this MD&A and the accompanying consolidated financial statements have been restated.

Reconciliation of the Consolidated Statements of Financial Position:

(in thousands of Canadian dollars) As at December 31, 2020	December 31, 2019	January 1, 2019
Adjustments	Previous policy Adjustments Restated	Previous policy Adjustments Restated
Assets Assets held for sale (761) Investments 494 Property, plant and equipment (181,316) Liabilities and Equity Liabilities associated with assets held for sale (800) Decommissioning obligations (212,113) Deferred tax liabilities 6,809 Retained earnings (accumulated deficit) 24,521	- - - 53,825 468 54,293 1,606,127 (200,531) 1,405,596 - - - 260,215 (227,374) 32,841 32,256 5,902 38,158 (11,725) 21,409 9,684	- - - 2,892 3 2,895 1,109,541 (159,014) 950,527 - - - 206,934 (178,411) 28,523 40,026 5,238 45,264 15,611 14,162 29,773

Reconciliation of the Consolidated Statements of Net Income (Loss) and Comprehensive Income (Loss):

(in thousands of Canadian dollars) For the years ending December 31, 2020	December 31, 2019
Adjustments	Previouspolicy Adjustments Restated
Depreciation (5,058) Finance costs and other (2,046) Realized loss (gain) on sale of assets 3,111 Income from equity investment (26) Deferred income tax expense (recovery) 907 Net income (loss) and comprehensive income (loss) 3,112 Net income (loss) and comprehensive income (loss) attributable to shareholders of the Corporation 3,112 Net income (loss) per share attributable to common shareholders – basic and diluted 0.01	66,542 (6,278) 60,264 29,285 (1,857) 27,428 (2,860) 225 (2,635) (752) (1) (753) (9,321) 664 (8,657) (15,500) 7,247 (8,253) (13,993) 7,247 (6,746) (0.04) 0.02 (0.02)

(in thousands of Canadian dollars)
For the years ending
December 31, 2020

December 31, 2019

Adjustments

Previouspolicy
Adjustments
Restated

Depreciation
(5,058)
Finance costs and other
(2,046)
Realized loss (gain) on sale of assets
3,111
Income from equity investment
(26)
Deferred income tax expense (recovery)
907
Net income (loss) and comprehensive income (loss)
3,112
Net income (loss) and comprehensive income (loss)
attributable to shareholders of the Corporation
3,112
Net income (loss) per share attributable to common
shareholders – basic and diluted
0.01

66,542
(6,278)
60,264
29,285
(1,857)
27,428
(2,860)
225
(2,635)
(752)
(1)
(753)
(9,321)
664
(8,657)
(15,500)
7,247
(8,253)
(13,993)
7,247
(6,746)
(0.04)
0.02
(0.02)

Reconciliation of the Consolidated Statements of Cash Flow:

(in thousands of Canadian dollars) For the years ending December 31, 2020	December 31, 2019
Adjustments	Previous policy Adjustments Restated
Net income (loss) 3,112 Adjustments for non-cash operatingactivities (3,112)	(15,500) 7,247 (8,253) 107,020 (7,247) 99,773

NON-GAAP MEASURES

Throughout this MD&A, Tidewater has used the following terms that are not defined by GAAP but are used by management to evaluate the performance of the Corporation. Since non-GAAP measures do not have a standardized meaning prescribed by GAAP and are therefore unlikely to be comparable to similar measures presented by other companies, securities regulations require that non-GAAP measures are clearly defined, qualified and reconciled to their nearest GAAP measure. Except as otherwise indicated, these non-GAAP measures will be calculated and disclosed on a consistent basis from period to period. Specific adjusting items may only be relevant in certain periods.

The intent of non-GAAP measures is to provide additional useful information to investors and analysts though the measures do not have any standardized meaning under IFRS. The measures should not, therefore, be considered in isolation or used in substitute for measures of performance prepared in accordance with IFRS. Other issuers may calculate these non-GAAP measures differently.

Adjusted EBITDA

Adjusted EBITDA is a non-GAAP measure. Adjusted EBITDA is calculated as income or loss before finance costs, taxes, depreciation, share-based compensation, unrealized gains/losses on derivative contracts, non-cash items, transaction costs, lease payments under IFRS 16 Leases and other items considered nonrecurring in nature plus the Corporation’s proportionate share of EBITDA in their equity investments.

Adjusted EBITDA is used by management to set objectives, make operating and capital investment decisions, monitor debt covenants and assess performance. In addition to its use by management, Tidewater also believes Adjusted EBITDA is a measure widely used by securities analysts, investors, lending institutions and others to evaluate the financial performance of the Corporation and other companies in the midstream industry. The Corporation issues guidance on this key measure. As a result, Adjusted EBITDA is presented as a relevant measure in the MD&A to assist analysts and readers in assessing the performance of the Corporation as seen from management’s perspective. Investors should be cautioned that Adjusted EBITDA should not be construed as alternatives to net income (loss), net cash provided by (used in) operating activities or other measures of financial results determined in accordance with GAAP as an indicator of the Corporation’s performance and may not be comparable to companies with similar calculations.

In accordance with IFRS, Tidewater's jointly controlled investments are accounted for using equity accounting. Under equity accounting, net earnings from investments in equity accounted investees are recognized in a single line item in the consolidated statement of net income (loss) and comprehensive income (loss). The adjustments made to net income (loss), as described above, are also made to share of profit from investments in equity accounted investees.

The following table reconciles net income (loss), the nearest GAAP measure, to Adjusted EBITDA:

Three months ended December 31, Year ended December 31,	Three months ended December 31, Year ended December 31,	Three months ended December 31, Year ended December 31,	Three months ended December 31, Year ended December 31,	Three months ended December 31, Year ended December 31,
(in thousands of Canadian dollars)	2020	2019	2020	2019
Net income (loss)(1) Deferred income tax expense (recovery)(1) Depreciation(1) Finance costs Share-based compensation Loss (gain) on sale of assets(1) Unrealized (gain) loss on derivative contracts Transaction costs Non-recurring transactions	$ 6,732 $ (13,098)		$ (35,178) $ (8,253) (10,212) (8,657) 85,641 60,264 68,558 27,428 7,068 9,504 10,854 (2,635) 41,741 15,061 2,838 15,753 1,696 1,209
	5,243 (4,856)
	22,143 18,995 14,654 12,665 1,546 2,143 46 493 (5,747) 9,414 1,620 13,786 359 453
Adjustment to share of profit from equity
accounted investments(1) 2,182 (8)			6,753 (1)
Adjusted EBITDA	$ 48,778 $ 39,987		$ 179,759 $ 109,673

(1) Amounts for the three months and year ended December 31, 2019 have been restated. Refer to the “Voluntary Change in Accounting Policy” section of this MD&A.

Distributable cash flow and distributable cash flow per common share

Distributable cash flow and distributable cash flow per common share are non-GAAP measures. Management believes distributable cash flow is a useful metric for investors when assessing the amount of cash flow generated from normal operations and to evaluate the adequacy of internally generated cash flow to fund dividends. Distributable cash flow is calculated as net cash provided by operating activities before changes in non-cash working capital plus cash distributions from investments, transaction costs, non-recurring expenses, and after any expenditures that use cash from operations. Changes in non-cash working capital are excluded from the determination of distributable cash flow because they are primarily the result of seasonal fluctuations or other temporary changes and are generally funded with short term debt or cash flows from operating activities. Deducted from distributable cash flow are maintenance capital expenditures, including turnarounds, as they are ongoing recurring expenditures which are funded from operating cash flows. Transaction costs are added back as they vary significantly quarter to quarter based on the Corporation’s acquisition and disposition activity. It also excludes non-recurring transactions that do not reflect Tidewater’s ongoing operations.

Distributable cash flow per common share is calculated as distributable cash flow over the weighted average number of common shares outstanding for the three months and year ended December 31, 2020. To calculate the dilutive effect of share awards and convertible debentures, the weighted average dilutive shares, as calculated in the net income (loss) attributable to shareholders - diluted, are added to the weighted average common shares outstanding and used as the denominator. Investors should be cautioned that distributable cash flow and distributable cash flow per common share should not be construed as alternatives to earnings or other measures of financial results determined in accordance with GAAP as an indicator of the Corporation’s performance and may not be comparable to companies with similar calculations.

The following table reconciles net cash provided by operating activities, the nearest GAAP measure, to distributable cash flow:

(in thousands of Canadian dollars except per share Three months ended December 31, Year ended December 31,	(in thousands of Canadian dollars except per share Three months ended December 31, Year ended December 31,	(in thousands of Canadian dollars except per share Three months ended December 31, Year ended December 31,	(in thousands of Canadian dollars except per share Three months ended December 31, Year ended December 31,
information)	2020	2019	2020 2019
Net cash provided by operating activities	$ 54,609 $ 68,219		$ 205,574 $ 91,520
Add (deduct): Changes in non-cash working capital (10,753) (44,950) (43,158) (8,081) Transaction costs 1,620 13,786 2,838 15,753 Income from equity investment - (679) - 752 Non-recurring transactions 359 453 1,696 1,209 Interest and financing charges (12,170) (8,507) (47,650) (16,607) Payment of lease liabilities, net of sublease
payments Maintenance capital	(14,120) (9,929) (6,000) (910)		(54,599) (22,041) (17,530) (6,135)
Distributable cash flow	$ 13,545 $ 17,483		$ 47,171 $ 56,370
Distributable cash flow per common share – basic $ 0.04 $ 0.05 $ 0.14 $ 0.17 Distributable cash flow per common share
– diluted	$ 0.03 $ 0.05		$ 0.14 $ 0.17

Tidewater expects to pay dividends from distributable cash flow, however the Corporation is entirely dependent upon its operations and assets to pay cash dividends to shareholders. Dividends declared for the three months ended December 31, 2020 were $3.4 million or approximately 25% of distributable cash flow. Dividends declared for the year ended December 31, 2020 were $13.5 million or approximately 29% of distributable cash flow. Growth capital expenditures will be funded from operating cash flow, along with proceeds from additional debt or equity, as required. The decrease in distributable cash flow between 2020 and 2019 was mainly related to increased financing costs from increased draws on the Corporation’s credit facility in connection with substantial completion of the 2019 capital program and the Prince George Refinery acquisition. Distributable cash flow for the three months ended December 31, 2020 was $13.5 million, compared to $17.5 million for the same period of 2019. The decrease is a result of higher interest expense and a one-time bad debt expense of $1.1 million recognized in the fourth quarter of 2020. Distributable cash flow for the year ended December 31, 2020 was $47.2 million, compared to $56.4 million for the year ended December 31, 2019. The decrease is a result of higher interest expense, maintenance capital and lease payments offset by an increase in cash flow from operations.

Tidewater’s objective is to pay out stable dividends throughout the year. There is no assurance regarding the amounts of cash to be distributed by Tidewater or generated by Tidewater and therefore, the funds available for distribution to shareholders. The actual amount distributed will depend on a variety of factors, including without limitation, the performance of the Corporation’s assets, the effect of acquisitions on Tidewater and other factors that may be beyond the control of Tidewater. In the event significant capital expenditures are required or the profitability of Tidewater declines, there would be a decrease in the amount of cash available for distribution to shareholders and such decrease could be material. Tidewater’s dividend policy is subject to change at the discretion of the Board of Directors of the Corporation. The actual amount of future dividends is proposed by management and is subject to the approval and discretion of the Board of Directors. The Board reviews future dividends in conjunction with their review of quarterly financial and operating results.

Growth capital expenditures will be funded from cash, retained operating cash flow and additional debt or equity, as required.

Payout Ratio

(in thousands of Canadian dollars except percentage information) Three months ended December 31, Year ended December 31, 2020 2019 2020 2019	(in thousands of Canadian dollars except percentage information) Three months ended December 31, Year ended December 31, 2020 2019 2020 2019	(in thousands of Canadian dollars except percentage information) Three months ended December 31, Year ended December 31, 2020 2019 2020 2019
	2020	2019 2020 2019
Dividends declared $ 3,391 $ 3,374 $ 13,538 $ 13,343
Distributable cash flow	$ 13,545 $ 17,483 $ 47,171 $ 56,370
Payout ratio	25% 19% 29% 24%

Payout ratio is calculated by expressing dividends declared to shareholders for the period as a percentage of distributable cash flow attributable to shareholders. This measure, in combination with other measures, is used by the investment community to assess the sustainability of the current dividends.

Net Debt

(in thousands of Canadian dollars)		December 31, 2020		December 31, 2019
Senior Credit Facility	$	565,446	$	550,000
Second Lien Term Loan - principal		100,000		100,000
Notes payable		123,501		122,831
Convertible debentures - principal		75,000		75,000
Cash		(9,931)		(5,785)
Net debt	$	854,016	$	842,046

Net debt is used by the Corporation to monitor its capital structure and financing requirements. It is also used as a measure of the Corporation’s overall financial strength. Net debt is defined as bank debt, notes payable and convertible debentures, less cash. The Corporation’s net debt has increased as at December 31, 2020 compared to December 31, 2019 because of increased bank debt due to the funding capital projects of the Corporation. Net debt excludes working capital, lease liabilities and derivative contracts as the Corporation monitors its capital structure based on consolidated net debt to Adjusted EBITDA, consistent with its credit facility covenants as described in Liquidity and Capital Resources.

Growth capital

Growth capital expenditures are generally defined as expenditures which are recoverable or incrementally increase cash flow or earnings potential of assets, expand the capacity of current operations or significantly extend the life of existing assets. This measure is used by the investment community to assess the extent of discretionary capital spending.

Maintenance capital

Maintenance capital expenditures are generally defined as expenditures which support and/or maintain the current capacity, cash flow or earnings potential of existing assets without the associated benefits characteristic of growth capital expenditures. These expenditures include major inspections and overhaul costs that are required on a periodic basis. This measure is used by the investment community to assess the extent of non-discretionary capital spending.

FORWARD-LOOKING INFORMATION

Certain statements contained in this MD&A constitute forward-looking statements and forward-looking information (collectively referred to herein as, “forward-looking statements”) within the meaning of applicable Canadian securities laws. Such forward-looking statements relate to future events, conditions or future financial performance of Tidewater Midstream and Infrastructure Ltd. (the “ Corporation ” or “ Tidewater ”) based on future economic conditions and courses of action. All statements other than statements of historical fact may be forward-looking statements. Such forward-looking statements are often, but not always, identified by the use of any words such as “seek”, “anticipate”, “budget”, “plan”, “continue”, “forecast”, “estimate”, “expect”, “may”, “will”, “project”, “predict”, “potential”, “targeting”, “intend”, “could”, “might”, “should”, “believe”, “will likely result”, “are expected to”, “will continue”, “is anticipated”, “believes”, “estimated”, “intends”, “plans”, “projection”, “outlook” and similar expressions. These statements involve known and unknown risks, assumptions, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements. The Corporation believes the expectations reflected in those forward-looking statements are reasonable, but no assurance can be given that these expectations will prove to be correct and such forward-looking statements included in this MD&A should not be unduly relied upon.

In particular, this MD&A contains forward-looking statements pertaining to but not limited to the following:

targeted Net Debt to Adjusted EBITDA of 3.0x to 3.5x in 2021 with the closing of the Pioneer Transaction;
expected volatility of financial markets and commodity prices into 2021;
guidance with respect to forecasted Adjusted EBITDA;
continued consistent performance of the Corporation’s facilities into 2021;
the pace of reintegration of the Corporation’s workforce to its business offices;
forecasted payout ratio and the projected use of Distributable Cash Flow to reduce leverage;
projections with respect to net debt to Adjusted EBITDA subsequent to the completion of the Pioneer Transaction;
the Corporation’s ability to benefit from the combination of growth opportunities and the ability to grow through capital projects;
the long-term impact of COVID-19 on the Corporation’s business, financial position, results of operations and/or cash flows;
supply and demand for services;
budgets, including future capital, operating or other expenditures and projected costs;
estimated throughputs;
the Corporation’s continuing evaluation of opportunities to develop future low-carbon fuel and renewable energy projects at the PGR and expansion and optimization opportunities at the PGR;
the successful integration of acquisitions and projects into the Corporation’s existing business;
the anticipated closing of the transaction to sell the Pioneer Pipeline to ATCO, the sale of certain ancillary assets to TransAlta Corporation, the Corporation’s expectations regarding timing to close such transactions, the Corporation’s expectations regarding receipt of regulatory approval for such transactions;
anticipated integration of the Pioneer Pipeline into NGTL’s and ATCO’s Alberta integrated natural gas transmission systems;
projected use of proceeds from the sale of the Pioneer Pipeline;
projections with respect to the returns on proposed small capital projects;
the Corporation’s focus on generating cash flow, increasing liquidity and reducing leverage;
the Corporation’s guidance of forecasted Adjusted EBITDA for the full year 2021;
forecasts with respect to future environmental and climate change compliance obligation costs;
Tidewater’s expectations to pay dividends from distributable cash flow; and
expectations that net cash provided by operating activities, cash flow generated from growth projects and cash available from Tidewater’s Senior Credit Facility and other sources of financing will be sufficient to meet its obligations and financial commitments and will provide sufficient funding for anticipated capital expenditures.

Although the forward-looking statements contained in this MD&A are based upon assumptions which management of the Corporation believes to be reasonable, the Corporation cannot assure investors that actual results will be consistent with these forward-looking statements. With respect to forward-looking statements contained in this MD&A, the Corporation has assumptions regarding, but not limited to:

Tidewater’s ability to execute on its business plan;
the timely receipt of all governmental and regulatory approvals sought by the Corporation including with respect to the anticipated sale of the Pioneer Pipeline;
general economic and industry trends, including the duration and effect of the COVID-19 pandemic;

that any third-party projects relating to the Corporation’s divestitures will be sanctioned and completed as expected;
future natural gas, crude oil and NGL prices;
continuing government support for existing policy initiatives;
processing and marketing margins;
future capital expenditures to be made by the Corporation;
foreign currency, exchange and interest rates;
that there are no unforeseen events preventing the performance of contracts;
the amount of future liabilities relating to lawsuits and environmental incidents and the availability of coverage under the Corporation’s insurance policies;
that there are no unforeseen material changes related to the Corporation’s planned divestitures and that counterparties will comply with contracts in a timely manner;
Husky volume demands from the PGR are consistent with forecasts;
that formal agreements with counterparties will be executed in circumstances where letters of intent or similar agreements have been executed and announced by Tidewater and that such transactions will close as expected;
the amount of future liabilities relating to lawsuits and environmental incidents;
oil and gas industry expectation and development activity levels and the geographic region of such activity;
the Corporation’s ability to obtain and retain qualified staff and equipment in a timely and costeffective manner;
assumptions regarding amount of operating costs to be incurred;
that there are no unforeseen material costs relating to the facilities which are not recoverable from customers;
distributable cash flow and net cash provided by operating activities are consistent with expectations;
the ability to obtain additional financing on satisfactory terms;
the availability of capital to fund future capital requirements relating to existing assets and projects;
the ability of Tidewater to successfully market its products; and
the Corporation’s future debt levels and the ability of the Corporation to repay its debt when due.

The Corporation’s actual results could differ materially from those anticipated in the forward-looking statements, as a result of numerous known and unknown risks and uncertainties and other factors including but not limited to:

changes in demand for refined products;
general economic, political, market and business conditions, including fluctuations in interest rates, foreign exchange rates stock market volatility and supply/demand trends;
activities of producers and customers and overall industry activity levels;
failure to negotiate and conclude any required commercial agreements;
non-performance of agreements in accordance with their terms;
failure to execute formal agreements with counterparties in circumstances where letters of intent or similar agreements have been executed and announced by Tidewater;
failure to close transactions as contemplated and in accordance with negotiated terms;
risks of health epidemics, pandemics, public health emergencies, quarantines, and similar outbreaks, including COVID-19, which may have sustained material adverse effects on the Corporation’s business financial position results of operations and/or cash flows;

the regulatory environment and decisions, and First Nations and landowner consultation requirements;
risks and impacts related to widespread epidemic or pandemic outbreaks, including COVID-19;
climate change initiatives or policies or increased environmental regulation;
that receipt of third party, regulatory, environmental and governmental approvals and consents relating to Tidewater’s capital projects can be obtained on the necessary terms and in a timely manner;
that the resolution of any particular legal proceedings could have an adverse effect on the Corporation’s operating results or financial performance;
competition for, among other things, business capital, acquisition opportunities, requests for proposals, materials, equipment, labour, and skilled personnel;
the ability to secure land and water, including obtaining and maintaining land access rights;
operational matters, including potential hazards inherent in the Corporation's operations and the effectiveness of health, safety, environmental and integrity programs;
actions by governmental authorities, including changes in government regulation, tariffs and taxation;
changes in operating and capital costs, including fluctuations in input costs;
legal risks and environmental risks and hazards, including risks inherent in the transportation of NGLs and refining of light crude oils which may create liabilities to the Corporation in excess of the Corporation's insurance coverage, if any;
actions by joint venture partners or other partners which hold interests in certain of the Corporation’s assets;
reliance on key relationships and agreements;
construction and engineering variables associated with capital projects, including the availability of contractors, engineering and construction services, accuracy of estimates and schedules, and the performance of contractors;
the availability of capital on acceptable terms;
changes in the credit-worthiness of counterparties;
adverse claims made in respect of the Corporation’s properties or assets;
risks and liabilities associated with the transportation of dangerous goods;
risks and liabilities resulting from derailments;
effects of weather conditions;
reliance on key personnel;
technology and security risks, including cybersecurity;
potential losses which would stem from any disruptions in production, including work stoppages or other labour difficulties, or disruptions in the transportation network on which the Corporation is reliant;
technical and processing problems, including the availability of equipment and access to properties;
changes in gas composition; and
failure to realize the anticipated benefits of recently completed acquisitions.

The foregoing lists are not exhaustive. Additional information on these and other factors which could affect the Corporation’s operations or financial results are included in the Corporation’s most recent AIF and in other documents on file with the Canadian Securities regulatory authorities.

Management of the Corporation has included the above summary of assumptions and risks related to forward-looking statements provided in this MD&A in order to provide holders of common shares in the capital of the Corporation with a more complete perspective on the Corporation’s current and future operations and such information may not be appropriate for other purposes. The Corporation’s actual results’ performance or achievement could differ materially from those expressed in, or implied by, these forward-looking statements and, accordingly, no assurance can be given that any of the events anticipated by the forward-looking statements will transpire or occur, or if any off them do so, what benefits the Corporation will derive therefrom. Readers are therefore cautioned that the foregoing list of important factors is not exhaustive, and they should not unduly rely on the forward-looking statements included in this MD&A. Tidewater does not undertake any obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events or otherwise, other than as required by applicable securities law. All forward-looking statements contained in this MD&A are expressly qualified by this cautionary statement. Further information about factors affecting forward-looking statements and management’s assumptions and analysis thereof is available in filings made by the Corporation with Canadian provincial securities commissions available on the System for Electronic Document Analysis and Retrieval (“ SEDAR ”) at www.sedar.com.

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Tidewater Midstream and Infrastructure Ltd. — Management Reports 2021

47272_rns_2021-03-11_cbaeaa19-182a-426b-bde2-ef1561f997fa.pdf

March 10, 2021

MANAGEMENT’S DISCUSSION AND ANALYSIS

BUSINESS OVERVIEW

HIGHLIGHTS

FINANCIAL HIGHLIGHTS

COVID-19 UPDATE

RESULTS OF OPERATIONS

Overview

Financial overview

Revenue

Operating expenses

General and administrative

Share-based compensation

Depreciation

Finance costs and other

Realized gain on derivative contracts

Unrealized gain/loss on derivative contracts

Realized gain/loss on sale of assets

Income from equity investments

Deferred income tax expense (recovery)

Net income (loss) attributable to shareholders

Net income (loss) per share attributable to shareholders

OUTLOOK AND CORPORATE UPDATE

Prince George Refinery

Pipestone Gas Plant

Pioneer Pipeline

Brazeau River Complex and Fractionation Facility

Natural Gas Storage

CAPITAL PROGRAM

SELECTED ANNUAL INFORMATION

SUMMARY OF QUARTERLY RESULTS

LIQUIDITY AND CAPITAL RESOURCES

Liquidity Sources

Cash Flow Summary

Net Cash Provided by Operating Activities

Net Cash Provided by (Used in) Financing Activities

Net Cash Used in Investing Activities

Capital Expenditures

Growth Capital

Maintenance Capital

CONTRACTUAL LIABILITIES AND COMMITMENTS

OUTSTANDING EQUITY

TRANSACTIONS WITH RELATED PARTIES

FINANCIAL INSTRUMENTS

RISK MANAGEMENT

ENVIRONMENTAL REGULATION AND CLIMATE CHANGE

ENVIRONMENTAL, SOCIAL AND GOVERNANCE

CRITICAL ACCOUNTING JUDGMENTS AND ESTIMATES

CONTROL ENVIRONMENT

Disclosure Controls and Procedures (“DC&P”)

Internal Controls Over Financial Reporting (“ICFR”)

VOLUNTARY CHANGE IN ACCOUNTING POLICY

NON-GAAP MEASURES

Adjusted EBITDA

Distributable cash flow and distributable cash flow per common share

Payout Ratio

Net Debt

Growth capital

Maintenance capital

FORWARD-LOOKING INFORMATION

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Tidewater Midstream and Infrastructure Ltd. Management Reports 2021