Tetra Technologies Announces Completion Of Definitive Feasibility Study For The Arkansas Bromine Project And Upgrade Of Previously Announced Bromine Resources To Reserves

Author: Benzinga Newsdesk | August 07, 2024 05:43pm

TETRA Technologies, Inc. ("TETRA" or the "Company") (NYSE:TTI) today released on its investor relations website an S-K 1300 Bromine Definitive Feasibility Study ("DFS") containing positive results including certain financial information on the development of TETRA's Arkansas bromine assets in the Evergreen Unit based on engineering studies, reservoir analysis, certain cost and revenue assumptions, plus quotes received on major components received or completed to date.  The Technical Report Summary ("TRS") was prepared to update the previously reported resources presented by RESPEC Company, LLC ("RESPEC") and incorporates the results of the definitive feasibility study, including bromine reserve determinations.

TETRA currently sources elemental bromine from a combination of long-term supply agreements and open-market purchases.  TETRA uses this third-party sourced elemental bromine to manufacture at its West Memphis, Arkansas facility, offshore completion fluids for the oil and gas industry and ultra-high purity zinc bromide (TETRA PureFlow) utilized in battery electrolytes for long-duration energy storage ("LDES").  TETRA's facility uses proprietary processes for reacting elemental bromine with various other raw materials and refining the resultant brominated products.  Development of its Arkansas bromine assets will allow TETRA to become vertically integrated (referred to herein as the "Vertically Integrated Production Case") for its future elemental bromine requirements and is expected to allow TETRA to phase out third-party purchases of elemental bromine over time.

The highlights of the DFS report are as follows:

• Vertically Integrated Production Case Net Present Value ("NPV"), at a 10% discount rate, of $710 million and is based on the current bromine business plus the proposed investment in this bromine project allowing TETRA to phase out third-party sourced elemental bromine. This case compares to TETRA's current bromine business with third-party purchases of elemental bromine of NPV $337 million ("Third-Party Bromine Purchase Only Case"), also at a 10% discount rate. This project is projected to create an incremental NPV of $374 million.(1)
• Internal Rate of Return ("IRR") of 62% for the Vertically Integrated Production Case. (1)
• 744 ktons of measured and indicated bromine resources have been upgraded to proven and probable reserves. In addition to proven and probable reserves, the Evergreen Unit is estimated to contain an additional 158 ktons of measured and indicated resources and 541 ktons of inferred resources of bromine.
• 40-year projected operating life. Proven and probable bromine reserves of 744 ktons plus measured and indicated bromine resources of 158 ktons support at least 40 years of operations based on reservoir studies completed by TETRA's advisors and consultants. (1)
• Phase I plant processing is expected to have a capacity of 75 million lbs of bromine per year. The project economics reflect initial production volumes of only 48 million pounds of elemental bromine per year, increasing the volumes currently being sourced by TETRA under long-term contract by over 50%.
• Post Final Investment Decision ("FID") capital expenditures of $270 million assumes that 35% of the upstream capital expenditures are absorbed by TETRA's partner in the Evergreen Brine Unit and does not assume a lithium project is constructed at the same time as the bromine project. If the lithium project is constructed, certain upstream, common and shared capital expenditures have the potential to be allocated to the lithium project, materially improving the overall economics of the bromine project. Costs incurred prior to FID are not reflected in these economics as they are viewed as sunk costs.
• The increased volumes and enhanced margins from TETRA moving from a Third-Party Bromine Purchase Only Case to a Vertically Integrated Production Case are expected to position TETRA to increase revenue from bromine-related product by between $200 million to $250 million when the bromine plant is in full production. Adjusted EBITDA is expected to increase by between $90 million to $115 million as a result of the higher sales volumes for the offshore oil and gas sector, long-duration energy battery storage, and the lower production costs of those products from being vertically integrated when compared against third-party purchases of elemental bromine.(1) Once a FID is made, plant construction is expected to be approximately 24 months.
• Payback of post-FID capital expenditures is expected to be 5.7 years reflecting the higher volumes available to TETRA from insourcing all its elemental bromine requirements at costs lower than what the Company is procuring today.(1)
• TETRA's approximately $400 million of United States tax loss carryforward are expected to be utilized for this project and are reflected in the economics.
• TETRA is expected to fund this project from borrowing under credit facilities currently available to the Company, which includes a $75 million delayed draw facility, and from cash flow from the existing business. The timing of this project will be aligned to ensure the base business free cash flow is available to the Company. TETRA intends to maintain a net leverage target of less than 2.5 times adjusted EBITDA on a trailing twelve-month basis.

Because this investment is expected to enable TETRA to vertically integrate its elemental bromine supply, the following benefits to TETRA are anticipated:

• Enhanced Margins: TETRA expects to eventually replace the purchase of elemental bromine from third party suppliers with lower cost insourced elemental bromine as a result of the investment in this project. The volatility of open market elemental bromine purchases are also expected to be reduced from the prices TETRA pays third parties, allowing TETRA to bid for long-term contracts with greater certainty of input costs. Increased production volumes manufactured through TETRA's West Memphis plant allows for greater utilization and better plant costs absorption.
  
  
  
   
• Provide Higher Volumes of Cost-Effective Bromine: In recent years, TETRA has had to purchase more elemental bromine at spot-market prices because the volumes available from TETRA's long-term supply agreement have not been sufficient to meet overall demand for a growing offshore oil and gas market. This increase in offshore deepwater demand combined with an expected growth in demand for TETRA PureFlow ultra-high purity zinc bromide-based electrolyte will exceed TETRA's currently available third-party supply volumes. This project is expected to allow TETRA to meet those requirements.

Posted In: TTI