TC Energy maintaining targeted schedule, latest cost estimate for Coastal GasLink
, The Canadian Press
TC Energy Corp. remains on track to complete the Coastal GasLink pipeline by the end of this year without another escalation in construction costs, the Calgary-based company said Friday.
The update is welcome one for TC Energy, which has been under significant scrutiny from investors and credit rating agencies for its heavy debt load as well as for the spiralling costs of the Coastal Gas Link project, a 670-km pipeline spanning northern B.C. that will carry natural gas to the LNG Canada facility in Kitimat.
The company was recently downgraded by both DBRS Morningstar and Moody's Corp., in part due to the ballooning costs of the project, which has been dogged by unexpected construction issues and rising labour costs.
Over the course of the project, the pipeline's construction has also attracted opposition and protests from environmentalists and Indigenous leaders. While many Indigenous groups along the project's pathway support the pipeline, the hereditary Wet'suwet'en chiefs, whose territory the pipeline crosses, do not.
In February, TC Energy raised the estimated project price tag to $14.5 billion, up significantly from a previous estimate of $11.2 billion and more than double the initial cost estimate of $6.2 billion.
At the time, the company said it was still hoping to complete the pipeline by the end of 2023, but warned that if it takes longer and construction extends well into 2024, it could add an additional $1.2 billion to the project's costs.
In the spring, the B.C. government issued a handful of stop-work orders on portions of the project due to sediment control and erosion problems.
But on Friday, TC Energy executive vice-president Bevin Wirzba said Coastal GasLink is managing the challenges and the project is more than 90 per cent finished. He said the company is maintaining its previously announced completion target and most recent cost estimate.
“We’ve had our share of really complex and risky parts of the project to accomplish, and I’m really proud that the team has delivered upon all of them," Wirzba said, on a conference call with analysts to discuss the company's second-quarter earnings.
"The remaining scope is not without execution risk, but we’ve been able to navigate these challenges week by week . . . We have all the plans in place to deliver and finish strong in the year-end."
Completing Coastal GasLink on time is a crucial piece in what is TC Energy's overall strategic plan to reduce its debtload and free up opportunities for growth.
On Thursday, the company announced its plans to split into two separate companies by spinning off its crude oil pipelines business.
Having two separate companies — one focused on crude oil transport, and one focused on natural gas and low-carbon forms of energy — will help TC Energy attract new investors and pursue a wider range of growth opportunities, CEO François Poirier said.
On Monday, TC Energy also announced it would sell off a 40 per cent stake in its Columbia Gas Transmission and Columbia Gulf Transmission systems to New York City-based Global Infrastructure Partners for $5.2 billion.
Poirier said he hopes to achieve an additional $3 billion in divestitures between now and the end of 2024, adding the funds will be used to pay down debt and clear the way for the growth of the two newly separated companies.
TC Energy's reported a $250 million profit in the second quarter, down from $889 million a year earlier.
The company's share price was down more than 5 per cent, at $44.84, as of midday trading Friday.
This report by The Canadian Press was first published July 28, 2023.
TC Energy's split could help with debt and improve ESG: Strategist
, BNN Bloomberg
TC Energy Corp.’s move to spin off its crude oil business and separate into two companies has various benefits, according to one strategist, including helping the company achieve its debt goals.
On Thursday, the Calgary-based energy company announced a plan to split into two publicly traded entities. TC Energy said in a release that following the transaction, it will focus on natural gas infrastructure, while the new liquids pipeline company will focus on creating value from its asset base.
Stephen Ellis, an equity strategist at Morningstar Research Services, said in an interview with BNN Bloomberg that the move bring several benefits for the company that include lowering leverage as well as highlighting the value of its existing gas and power assets.
“I think it helps TC Energy achieve its debt-related goals,” Ellis said. “The oil spin-off is supposed to be capitalized at five times debt to EBITA and TC Energy has a goal of reaching 4.7 times by 2024. So there’s potential for this to help lower the leverage of TC energy and help it achieve its goal there.”
Spinning off the crude oil business also makes sense from an ESG perspective, according to Ellis.
“It also cleanly separates … the oil assets which have more challenges from an ESG perspective from the more attractive gas and power assets, which have opportunities with carbon capture and hydrogen,” he said.
Following the announcement, Ellis said the LNG side of the businesses is the “big growth driver.”
“Canada I think after many years and many struggles actually has some very viable growth LNG projects coming online,” he said.
TC Energy splitting into two companies by spinning off liquids business
, The Canadian Press
TC Energy Corp. has announced plans to split into two separate companies by spinning off its crude oil pipelines business.
The Calgary-based pipeline giant made the announcement — which it called "transformational" — after the close of markets Thursday, one day before its scheduled conference call to discuss the company's second-quarter earnings.
According to the company, the transaction will be completed on a tax-free basis, and will result in the creation of two publicly traded companies. TC Energy will look more like a utility company, with a focus on natural gas infrastructure as well as nuclear, pumped hydro energy storage and new low-carbon energy opportunities.
The new liquids pipeline business will be headquartered in Calgary with an office in Houston, Texas. It will focus on enhancing the value of the company's existing 4,900 kilometres of crude oil pipelines, including the critical Keystone pipeline system which transports oil from Alberta to refining markets in the U.S. midwest and U.S. Gulf Coast.
In an interview, TC Energy CEO François Poirier said the company's board of directors has approved the plan, which comes as the result of a two-year strategic review.
Poirier said now, more than ever, it's apparent that all types of energy are required to meet global demand. While TC Energy has its fingers in many different pies, from natural gas delivery to crude oil transport to nuclear through its part ownership of Ontario's Bruce Power, the company felt that separating its lines of business would allow for faster growth.
"When we took a step back and looked at all the opportunity we had in all of our franchises, it was way more than we could ... pursue as one company, given our financial and human capacity," Poirier said.
“It’s simply a case of having limited resources, and we feel like we can pursue a bigger percentage of our opportunity set as two different companies.”
Creating a pure-play natural gas and low-carbon business will help TC Energy attract new investors, Poirier said, though he emphasized that doesn't mean investors are shying away from crude oil pipelines.
"The shareholders of TC Energy today really like that (oil pipeline) business," he said.
"It's just that there's been so much growth on the gas and low-carbon side of the business.'
Under the proposed transaction, TC Energy shareholders will retain their current ownership in TC Energy’s common shares and receive a pro-rata allocation of common shares in the new liquids pipelines company. The number of common shares in the new company to be distributed to TC Energy shareholders will be determined prior to the closing of the split.
The transaction is expected to be tax-free for TC Energy's Canadian and U.S. shareholders. Because that will require favourable rulings from U.S. and Canadian tax authorities which will take some time to achieve, Poirier said, a shareholder vote on the transaction won't be held until mid-2024.
The transaction is expected to be complete by the end of 2024.
TC Energy has been under scrutiny by analysts and credit rating services this year for its significant debt load as well as for cost overruns on the Coastal GasLink project, which is currently nearing completion in B.C.
The projected cost of that project has grown to $14.5 billion, up significantly from a previous estimate of $11.2 billion and more than double the initial cost estimate of $6.2 billion.
On Monday, TC Energy announced it would sell off a 40 per cent stake in its Columbia Gas Transmission and Columbia Gulf Transmission systems to New York City-based Global Infrastructure Partners for $5.2 billion.
Poirier said he hopes to achieve an additional $3 billion in divestitures between now and the end of 2024, adding the funds will be used to pay down debt and clear the way for the growth of the two newly separated companies.
A portion of TC Energy's of long-term debt will be transferred to the liquids pipelines company on a cost-effective basis.
"We’re unlocking tremendous value, in my view, by creating two premium energy infrastructure companies," Poirier said.
Poirier will remain president and CEO of TC Energy, while Bevin Wirzba — currently executive vice-president and group executive for the company's natural gas and liquids pipelines — will become CEO of the new liquids pipelines company.
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