Tidewater shares fall on deal to buy Prince George refinery from Husky

CALGARY — Shares in Tidewater Midstream and Infrastructure Ltd. fell sharply Friday after it announced it would buy a small light oil refinery in Prince George, B.C., from Husky Energy Inc. for $215 million.

While Husky shares rose slightly, Tidewater stock fell by almost 11 per cent to as low as $1.00 on the Toronto Stock Exchange.

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The midstream company's core business is processing natural gas and upgrading, transporting and storing petroleum products produced in northern Alberta and B.C. It has scheduled a conference call for Monday to discuss the deal.

"We attribute the reaction to it being an unexpected acquisition for the company in a somewhat new business line," analyst Trevor Reynolds of Acumen Capital wrote in an email, adding there is also concern about its plan to fund the purchase entirely with debt.

In announcing the deal, Tidewater said the transaction offers many "synergistic opportunities" to expand its petrochemical liquids value chain in northern B.C.

Its recently commissioned Pipestone Montney gas plant there separates and purifies a light oil called condensate, the "optimal" and current feedstock for the 12,000-barrel-per-day refinery, it noted. The refinery's top two customers are also Pipestone customers, it added.

Shares in Husky rose after analysts rated the deal a positive step in its quest to sharpen focus on its physically linked heavy oil and refining assets in Western Canada and the United States, as well as its offshore oil and gas production off Canada's East Coast and in the Asia-Pacific region.

Analyst Greg Pardy of RBC Dominion Securities said in a report the sale price is near the upper end of RBC's earlier estimate of $180 million to $225 million.

Husky announced last January it would attempt to sell the refinery and its cross-Canada network of more than 500 service stations, travel centres, cardlock operations and bulk distribution facilities.

"We continue to deliver on Husky’s five-year plan ... aimed at further enhancing the resiliency of the company," said CEO Rob Peabody in a news release on Friday. The company said its review of Husky’s retail and commercial fuels business "continues to progress."

As part of the sale Friday, Husky has agreed to buy 90 per cent of the refinery's diesel and gasoline capacity for five years, with prices subject to review, to supply its and its partners retail gasoline stations.

The deal includes a closing adjustment for inventory, as well as a contingent payment of up to $60 million over two years.

The Prince George refinery, mainly used to supply fuel for the immediate region, is one of only two major refineries in British Columbia.

In 2017, Calgary-based fuel marketer Parkland Fuel Corp. announced it would buy the other, a 55,000-barrel-per-day facility in Burnaby, B.C., owned by Chevron Canada.

The $1.46-billion pricen tag included 129 gas stations in the Vancouver area, 37 commercial cardlock and three marine fuelling locations, as well as three terminals in B.C. and a wholesale business that includes aviation fuel sales to the Vancouver International Airport.

This report by The Canadian Press was first published Oct. 4, 2019.

Companies in this story: (TSX:HSE, TSX:TWM, TSX:PKI)

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