Morningstar DBRS Confirms North West Redwater Partnership's Issuer Rating at "A" and Commercial Paper at R-1 (low), Stable Trends

DBRS Limited (Morningstar DBRS) confirmed North West Redwater Partnership's (NWR) Issuer Rating and the credit rating on its Senior Secured Bonds at "A." Concurrently, Morningstar DBRS also confirmed the credit rating on NWR's Commercial Paper at R-1 (low). All trends are Stable. NWR, a partnership between CNR (Redwater) Limited, a subsidiary of Canadian Natural Resources Limited (CNRL; rated A (low) with a Negative trend), and APMC (Redwater) L.P., a subsidiary of Alberta Petroleum Marketing Commission (APMC), is responsible for the ownership and operation of a 50,000 barrel per day (b/d) bitumen refinery (the Project) in Alberta's oil sands and refinery and pipeline hub. The Project has the design capacity (intended nameplate capacity) to process approximately 77,000 b/d of bitumen blend feedstock containing approximately 50,000 b/d of bitumen into a variety of refined products, notably ultra-low sulfur diesel, capturing value-add in Alberta instead of shipping bitumen to U.S. refineries.

KEY CREDIT RATING CONSIDERATIONS
The credit rating confirmations stem from the Project's continued operational results, which have gradually ramped up since the Commercial Operations Date in June 2020 and experienced several months of well above design capacity throughput in 2024 as process optimization and fine-tuning continued to see results. Full-year throughput in 2024, however, did fall slightly because of a full maintenance window on the facility. A planned turnaround in 2025 may also affect production throughput this year although NWR is working on steps to move to a four-year maintenance turnaround cycle to maximize uptime. Morningstar DBRS notes that average processing capacity in 2024 was 78,000 b/d, compared with nameplate capacity of 77,000 b/d. Project availability has also seen steady improvement since the 2022 turnaround. NWR continues to place focus on the refinery's performance, with an emphasis on improving reliability and facility availability and optimizing selection and processing of different crude slates. Although NWR's credit ratings are ultimately based on the credit ratings of its toll payers, sustained ability to perform at or above the nameplate capacity supports APMC's incentive to step in to find a solution should CNRL default and is a key consideration for NWR's credit ratings.

CREDIT RATING DRIVERS
NWR's credit ratings are supported by the credit ratings on the two Debt Service Obligation (DSO) guarantors and indirectly by the value of the bitumen feedstock and refined products that underpin the APMC's potential incentive to continue supporting the Project, in case CNRL defaults, until an alternative solution is found. Following the credit rating upgrade in 2022, Morningstar DBRS believes a further positive credit rating action is not likely at this time. Negative credit rating actions taken on the toll payers could cause Morningstar DBRS to downgrade NWR's credit ratings (although a one-notch downgrade to CNRL from its current A(low) rating may not necessarily result in a corresponding downgrade to NWR).

CREDIT RATING RATIONALE
The credit ratings on both CNRL and the Province of Alberta (the Province; rated AA with a Stable trend) flow directly to form the basis of NWR's credit ratings through the DSO structure of the toll Processing Agreements between the two toll payers and NWR. The DSO commits the APMC and Canadian Natural Resources Partnership (CNR; by its managing partner CNRL) to unconditionally ensure sufficient funds for debt service on a 75%/25% split, respectively, regardless of the Project's operational status. The DSO is several and not joint, and a default by CNRL on CNR's 25% of the DSO would theoretically lead to a default on the senior debt. However, Morningstar DBRS believes that the APMC has a potential incentive in the form of incremental revenue from the sales of refined products to keep the Project operational, if CNRL should default, until a solution, such as a replacement toll payer, is secured, which adds additional support to the credit ratings. As a result, Morningstar DBRS views NWR's credit rating level as being between the credit ratings of CNRL and the Province, at the "A" level. Additionally, Morningstar DBRS views APMC (Redwater) L.P.'s ownership of 50% of the equity interest in the Project, coupled with the APMC's willingness to extend its commitment to the Project by 10 years during a capital structure reoptimization, as supportive of this economic incentive and therefore positive to the Project.

In 2024, NWR also undertook several steps to optimize its financing costs and long-term capital structure by instituting a Commercial Paper program that is intended to complement bank revolvers and term loans, as well as issuing $1.3 billion of long-term debt to refinance and pay down both bonds that matured in 2024 as well as a portion of its revolving facilities.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
Credit rating actions on CNRL and the Province are likely to have an impact on this credit rating. ESG factors that have a significant or relevant effect on the credit analysis of CNRL or the Province are discussed separately at https://dbrs.morningstar.com/issuers/66 and https://dbrs.morningstar.com/issuers/3014, respectively.

A description of how Morningstar DBRS considers ESG factors within the Morningstar DBRS analytical framework can be found in the Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025) at https://dbrs.morningstar.com/research/454196.

Notes:
All figures are in Canadian dollars unless otherwise noted.

Morningstar DBRS applied the following principal methodology:
-- Morningstar DBRS Global Corporate Criteria (February 3, 2025), https://dbrs.morningstar.com/research/447186

The following methodologies have also been applied:
-- Global Methodology for Rating Project Finance (December 10, 2024), https://dbrs.morningstar.com/research/444393
-- Morningstar DBRS Criteria: Approach to Environmental, Social, and Governance Factors in Credit Ratings (May 16, 2025), https://dbrs.morningstar.com/research/454196

The credit rating methodologies used in the analysis of this transaction can be found at: https://dbrs.morningstar.com/about/methodologies.

A description of how Morningstar DBRS analyzes corporate finance transactions and how the methodologies are collectively applied can be found at: https://dbrs.morningstar.com/research/431153.

The related regulatory disclosures pursuant to the National Instrument 25-101 Designated Rating Organizations are hereby incorporated by reference and can be found by clicking on the link under Related Documents or by contacting us at info-DBRS@morningstar.com.

The credit rating was initiated at the request of the rated entity.

The rated entity or its related entities did participate in the credit rating process for this credit rating action.

Morningstar DBRS had access to the accounts, management, and other relevant internal documents of the rated entity or its related entities in connection with this credit rating action.

This is a solicited credit rating.

For more information on Morningstar DBRS' policy regarding the solicitation status of credit ratings, please refer to the Credit Ratings Global Policy, which can be found in the Morningstar DBRS Understanding Ratings section of the website: https://dbrs.morningstar.com/understanding-ratings

The conditions that lead to the assignment of a Negative or Positive trend are generally resolved within a 12-month period. Morningstar DBRS trends and credit ratings are under regular surveillance.

Information regarding Morningstar DBRS credit ratings, including definitions, policies, and methodologies, is available on https://dbrs.morningstar.com or contact us at info-DBRS@morningstar.com.

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