Morningstar DBRS Confirms Wolf Midstream Canada LP's Issuer Rating and Senior Unsecured Notes at BB (high) With Stable Trends

DBRS Limited (Morningstar DBRS) confirmed Wolf Midstream Canada LP's (Wolf or the Company) Issuer Rating and Senior Unsecured Notes credit rating at BB (high). The recovery rating on the Senior Unsecured Notes remains unchanged at RR4. All trends are Stable.

KEY CREDIT RATING CONSIDERATIONS
Wolf's credit ratings are supported by relatively stable cash flows generated from long-term take-or-pay (ToP) and firm purchase obligations (Firm) contracts across its three business segments and its reasonably diversified portfolio of assets. The credit ratings are constrained by the business' residual volume and commodity risks and the large capital expenditure (capex) program over the next two years.

The Company's operating performance in 2024 was in line with Morningstar DBRS' expectations. Approximately 80% of the Company's adjusted EBITDA in 2024 was generated under ToP and Firm contracts. The Company's NGL North Phase Two project continues to progress on schedule and within budget. Morningstar DBRS does not expect Dow Inc.'s announced delay in its petrochemical project in Alberta to have a material impact on the schedule of NGL North Phase Two or on Wolf's earnings over the near term. Morningstar DBRS notes that one of the Company's key counterparties, MEG Energy Corp. (MEG), is the subject of a takeover bid from Strathcona Resources Ltd. (Strathcona). While the weighted-average tenor of Wolf's contracts (approximately 20 years) is longer than those of its Morningstar DBRS-rated peers, the contribution of investment-grade counterparties, which Morningstar DBRS estimates at 55% to 60% of EBITDA, is relatively lower. A successful bid by Strathcona for MEG could potentially increase the counterparty quality, as MEG accounts for approximately 36% of Wolf's 2024 EBITDA. Wolf is well diversified for its current credit ratings and will have a meaningful presence in each of its three business segments once key expansion projects are completed in mid-2027.

The credit ratings are constrained by price and volume risks predominantly present at the Company's natural gas liquids (NGL) segment. The credit ratings are also constrained by the Company's large capex plan, with approximately $800 million remaining to be spent as of mid-2025 through mid-2027.

CREDIT RATING DRIVERS
Morningstar DBRS could take a positive credit rating action if the Company successfully completes its expansion projects and maintains its cash flow-to-debt consistently above 15%. Morningstar DBRS could downgrade the credit ratings if the Company's cash flow-to-debt ratio weakens below 10% on a sustained basis.

EARNINGS OUTLOOK
Morningstar DBRS expects Wolf's EBITDA in 2025 to decline modestly relative to 2024 because of lower commodity prices affecting the NGL segment. Under Morningstar DBRS' base-case assumptions, EBITDA is expected to increase modestly in 2026 relative to 2025 before growing materially in 2027 once the expansion projects are placed in service.

FINANCIAL OUTLOOK
Morningstar DBRS expects Wolf's cash flow from operations to modestly decline in 2025 and 2026 relative to 2024 as a result of lower commodity prices affecting the NGL segment and cash taxes. However, Morningstar DBRS expects the Company's credit metrics to remain supportive of the current credit ratings.

CREDIT RATING RATIONALE
Comprehensive Business Risk Assessment (CBRA): BBH
Wolf's CBRA of BBH reflects its strong contractual position. The business risk score also factors in the competitive environment across the Company's business segments. The CBRA also incorporates, through a negative adjustment, the price and volume risk associated with the Company's NGL segment.

Comprehensive Financial Risk Assessment (CFRA): BBH/BB
Wolf's CFRA of BBH/BB reflects its stable financial metrics for the current credit rating category and Morningstar DBRS' expectation that the Company's financial profile will improve once the significant capital spend is completed in mid-2027. Morningstar DBRS expects the Company's debt levels to increase over the near and medium term but to remain manageable despite elevated capital spend in 2025 and 2026. Despite significant capex over the next two years, Morningstar DBRS expects Wolf's credit metrics to remain supportive of the current credit ratings. Capex is expected to slow materially in 2027 as the Company's projects are placed into service, with leverage metrics expected to improve post-2027. The CFRA also incorporates, through a negative adjustment, the price and volume risk associated with the Company's NGL segment and the ongoing capex plan, with approximately $800 million of the total $1.1 billion in project costs remaining to be spent as of mid-2025 through mid-2027.

Intrinsic Assessment (IA): BBH
The IA of BBH represents the midpoint of the Intrinsic Assessment Range and is based on the CBRA and CFRA, also taking into consideration the current credit rating trend and peer comparisons, among other factors.

Additional Considerations: None
Wolf's credit ratings include no further negative or positive adjustments because of additional considerations.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE CONSIDERATIONS
There were no Environmental/Social/Governance factors that had a significant or relevant effect on the credit analysis.

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.

Further details on the Issuer's Intrinsic Assessment can be found at https://www.dbrsmorningstar.com/research/457985.

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

Morningstar DBRS applied the following principal methodology:
-- Global Methodology for Rating Companies in the Oil & Gas, Oilfield Services, and Pipeline and Midstream Energy Industries (May 6, 2025), https://dbrs.morningstar.com/research/453396

Morningstar DBRS credit ratings may use one or more sections of the Morningstar DBRS Global Corporate Criteria (February 3, 2025; https://dbrs.morningstar.com/research/447186), which covers, for example, topics such as holding companies and parent/subsidiary relationships, guarantees, recovery, and common adjustments to financial ratios.

The following methodologies have also been applied:
-- 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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