Q1 2020 Earnings Call
All participants please stand by your conference is ready to begin.
Good afternoon, ladies and gentlemen, welcome to the PC energy 2021st quarter results Conference call I would now like to turn the meeting over to Mr., David Veneta, Vice President Investor Relations. Please go ahead Mr., Minnesota.
Thank you thanks, very much and good afternoon, everyone I'd like to welcome you to TC Energy's 2021st quarter Conference call.
Joining me today, our Russ Girling, President and Chief Executive Officer, Don Marchand Executive Vice President strategy in corporate development and Chief Financial Officer.
<unk> Chief operating officer, Unprecedent power in storage and Mexico, Crazy Robinson, President Canadian natural gas pipelines stand Troutman, President U.S. natural gas pipelines.
Miller President liquids pipelines, that's been worked Spa senior Vice President liquids pipelines and Glenn The news Vice President Controller Rustand Dawn will begin today with some opening comments on our financial results and certain other company developments a copy of the slide presentation that will accompany their remarks is available on.
Our website it can be found in the investor section under the heading events and presentations.
Following their prepared remarks, we will take questions from the investment community. If you are remember the media. Please contact gimi hurting following this call and should be happy to address your questions in order to provide everyone from the investment community was an equal opportunity to participate we ask that you limit yourself to two questions. If you have additional questions. Please.
Enter into Q.
So we ask that you focus your questions on our industry, our corporate strategy recent developments and key elements of our financial performance.
If you have detailed questions relating to some of or smaller operations, where your detailed financial models Hunter and I would be pleased to discuss some what you following the call.
Before rust begins I'd like to remind you that her remarks today will include forward looking statements that are subject to important risks and uncertainties for more information on these risks and uncertainties. Please see the reports filed by TC energy with Canadian Securities regulators and with the U.S. Securities Exchange Commission.
And finally during this presentation will refer to measures such as comparable earnings comparable earnings per share comparable earnings before interest taxes, depreciation and amortization or comparable EBITDA and comparable funds generated from operations. These and certain other comparable measures are considered to be non-GAAP measures as a risk.
Well they may not be comparable to similar measures presented by other entities. They are used to provide you with additional information on T.C. energy is operating performance liquidity and its ability to generate funds to finance its operations with that I'll now turn the call over to Ross.
Thank you David and good afternoon, everyone and thank you all very much for joining us today.
Clearly we're living in an unprecedented times with cobot 19.
Pandemic, having a significant impact on millions of people around the world.
He happens Tc energy and I'd like to start expressing my sincere thanks to the frontline health care and other essential service workers, who are risking their personal safety to ensure the well being of others yourself with Saxon during this difficult time are truly courageous.
At GC energy as always we too are focused on health and safety of our employees our contractors in the communities in which we operate.
When the World Health organization declared cobot Nineteena global pandemic in early March our business continuity plans were put in place across the organization, allowing us to continue to effectively operate our assets and execute on our capital programs.
The services, we provide are broadly considered a central are critical in Canada, the United States in Mexico, given the important role or infrastructure plays in delivering energy to people across the continent.
And there is that's a responsibility we take very seriously like many others thousands of our employees are now working remotely well those that must be physically at our work sites are following rigorous health hygiene and distancing protocols I want to acknowledge and thank our employees and their families for their ongoing efforts to ensure the energy that is vital to the daily.
Lives of so many continues to be delivered seamlessly across North America and your efforts are truly making a difference.
Turning now to our first quarter financial results and certain other recent developments across our three core businesses.
With approximately 95% of our comparable EBITDA coming from a regulated or long term contracted assets. We are largely insulated from the volatility associated with volume throughput and the commodity prices that are being experienced by many others.
Aside from the impact of normal maintenance activities and seen on seasonal factors to date, we have not seen any meaningful change in the utilization of our assets, which further reinforces their critical nature to North America. As a result as highlighted in our first quarter report or 100 billion dollar portfolio high quality long life energy.
Structure assets continue to produce strong financial results and we continue to capitalize or we continue to realize the growth expected from our industry, leading capital program today that program that we advancing its $43 billion secured capital projects and it now includes Keystone XL.
In addition, we continue to advance more than $10 billion or projects under development, including the refurbishment and another five reactors at Bruce power, It's part of their long term life extension program.
Over the last four months, we took significant steps to fund our 2020 capital expenditure program and to maintain our strong financial position despite challenging capital market conditions more specifically, we enhanced our liquidity by more than $9 billion through the issuance of long term debt in both Canada, United States at very attractive rates.
The establishment of incremental committed credit facilities and the sale of three on chair and natural gas fired power plants.
When combined with our predictable and growing cash flow from operations and the sale of 65% interest in the coastal gaslink.
Project, which is a scheduled to close in the second quarter. We believed that we're very well position to continue to fund our capital program and other obligations through a prolonged period of disruption in capital markets if that was to occur.
Looking forward, we expect or selling operating and financial performance to continue with 2020 comparable earnings per share still anticipated to be similar to the recorded or the record results that we produced in 2019.
Well, we're proud of our financial performance and the significant returns we generated for our shareholders. We know that our ongoing success depends on our ability to bounce prop profitability with safety and environmental and social responsibility.
65 year track record of safe and reliable operations, but we recognize that we can always improve.
Keep you better informed we have published several investor focus D.S.G. documents over the past year. They describe some of the work we're doing to ensure our business remains resilient in an ever evolving energy landscape.
All of this can be found on our website at Tc energy Dotcom.
With that as an overview I'll explain some of the recent developments beginning with a brief review first quarter financial results, Don will provide more detail of our results and liquidity and just a few minutes.
Excluding certain specific items comparable earnings were $1.1 billion or $1.18 per dollar an 18 cents per common share for the three months ended March 30, onest compared to $1 billion or dollar seven per share in 2019, which was an increase of 10% on a per share basis comparable EBITDA of two and.
<unk> billion dollars was 6% higher than the Mt reported for the same period last year, while comparable funds generated from operations was $2.1 billion, which was 17% higher than the comparable period.
Each of these amounts reflects the strong performance of our legacy assets as well as contributions from another $1.6 billion of new long term contracted and rate regulated assets placed into service in early 2020.
Next I'll make a few comments on our three core businesses, starting with our natural gas pipeline business.
Customer demand for services remained strong despite the cobot 19 impacts on the broader North American economy.
It into this can be seen in the volumes transported across our systems with the NGL system field receipts, averaging about 12.2 Bcf a day the Canadian mainline western receipts, averaging 3.2 Bcf a day, our broader U.S. pipeline network moving approximately 26 Bcf a day at our Mexican pipelines moving approximately 1.5 Bcf a day.
Each of these amounts are similar to our greater than the volumes moved over the same period last year at the same time, we continue to advance more than $27 billion of capital projects associated with their natural gas pipeline businesses.
Program includes significant expansion of our NGL system.
Ask the additions of our to our U.S. network via an array pipeline that you a project and our coastal Gaslink pipeline project in British Columbia, which will play an important role in delivering Canadian natural gas Asian markets.
Well, it's too early to determine whether the cobot Nike a pandemic will have any long term attacks on our capital programs, what I would say as Directionally, we would expect some slowdown of our construction activities and capital expenditures and 2020, because they go global health crisis, and the impact or the Kobin related safety programs.
Safety protocols will have on our construction productivity.
Finally in natural gas pipelines last week, we were pleased to announce at five your revenue requirement settlement with our customers on the NGL system.
Settlement, which runs from January 2020 through December 2024 set the base equity return of 10.1% on 40% deems common equity and includes incentive mechanisms, where certain operating costs were variances from projected amounts would be shared between Tc energy and our customers.
The says settlement was a result, a collaborative process between us and our customers and as responsive to their needs. During this challenging time, while providing us with the stable return as we invest billions of dollars and pipeline infrastructure to enhance their connectivity.
Of natural gas supply to after premium markets.
Turning now to our liquids pipeline business, which generated solid results during the first quarter, despite extraordinary volatility in global crude oil markets.
Well the volatility didn't have an impact on our market linked and liquids marketing Vicki businesses.
Keystone continue to produce solid results as it serves an important market in the U.S. Midwest and Gulf Coast and is underpinned by long term take or pay contracts with strong Counterparties also in liquids pipelines, we recently announced that we would commence construction of Keystone pipeline or Keystone XL pipeline.
Keystone XL is the fourth phase of the Keystone system and continues to be in very very important project for both Canada and the United States, who are creating it will create thousands of jobs advanced energy security for both nations and environmentally sustainable way.
The project is underpinned by a new 20 year take or pay contracts that are expected to generate and approximately 1.3 billion U.S. and incremental EBITDA on an annual basis. Once the pipeline is placed into service.
Keystone XL will require an additional investment of approximately $8 billion U.S. and is expected to enter service in 2023.
To advance the project we've entered into a partnership with the government of Alberta, who will invest approximately $1.1 billion of equity into the project and fully guarantee at 4.2 billion dollar U.S. project level credit facility.
Once the project is completed and placed into service, we expect to acquire Gilbert of governments equity investment and refinanced the credit facility.
We appreciate the ongoing backing of landowners customers indigenous groups and numerous other partners in the U.S. and Canada, who have helps secure project support and key regulatory approvals or this very important energy infrastructure projects.
In addition, I'd like to thank them any government officials across North America for their support without which this project could not have advanced moving forward. We will continue to carefully managed various legal and regulatory matters matters. As we construct this pipeline, which will have the capacity to move about 830000 barrels a day of responsibly produced energy.
From the Canadian oil sands to the continents largest refining market in the U.S. Gulf Coast.
Turning now to power in storage, where Bruce power continue to produce solid results through the first three months of this year.
After years of preparation in January Bruce power commenced work on the unit six major component replacement or MCR outage. When they took it offline here in January we expect to invest approximately $2.4 billion in that program as well as the ongoing asset management program through 2023, when the unit.
Six refurbishment is targeted could be done unfortunately, because of cobot 19 on March 25th 2020, Bruce Power declared force majeure under its contract with the independent electric system. Operator. This force Ms. Your noticed covers the units at six MCR and certain asset management work at the time to force majeure. It was declared.
The unit six MCR program was ahead of schedule.
Despite the force Majeure, Bruce power has been able to continue limited work on critical path activities as well as training for the MCR contractors in late April move remobilization of the MCR workforce began with strict coated Nike measures in place with respect to worker safety measures include shift adjustments to reduce headcount.
Increased personal protective equipment, physical distancing and reduction in non critical work.
Operations and planned outages on all other units are expected to continue as normal.
Finally in power earlier. This week, we completed the sale of three natural gas fired power plants, and Ontario, Napanee hold and hills and our interest in the Cordons Energy Center net proceeds of approximately $2.8 billion will be used to help fund our industry leading capital program.
So in summary today, we are advancing $43 billion secured growth projects that are expected to enter service by 2023.
We've invested approximately $12 billion into this program to date with approximately $6 billion of these projects expected to be completed by the end of 2020, notably they are all underpinned by cost of service regulation or long term contracts, giving us visibility to earnings and cash flow they will generate as they enter service.
Based on the strength of our recent financial performance and our promising outlook for the future in February TC Energy's Board of directors declared a first quarter 2020 dividend at 81 cents per common share, which is equivalent to $3 and 24% on an annual basis. This represents an 8% increase over the Mt declared for the same period in 2019 and.
The twentyth consecutive year that their board that our board of directors has raised the dividend.
Over that same timeframe frame, we have maintained consistently strong coverage ratio ratios with our dividend on average representing a payout of approximately 80% of comparable earnings and 40% of comparable funds generated from operations, leaving us with significantly internally generated cash flow to invest in our businesses.
Based on the continued strong performance or a base business the organic growth and the organic growth, we expect to realize as we advance our $43 billion secured capital program, we expect our dividend to grow at an annual average rate of 8% to 10% through 2021 in 5% to 7% thereafter.
So in summary, I'd leave you with the following key messages today, we are leading North American energy infrastructure company with a strong track record of delivering long term shareholder value our assets provide an essential service to the functioning of the North American Society, and its economy and the demand for our services remains strong looking forward.
We have five significant platforms for growth Canadian you asked a Mexican natural gas pipelines liquids pipelines and power in storage as we advance our $43 billion secured capital program, we expect to build on our long track record of growing earnings cash flow and dividends per share.
We have also more than $10 billion Kroger project in the advanced stages of development and expect numerous other inquired or organic growth opportunities emanate from our extensive critical asset footprint.
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Nobody working in accordance with our values and responding quickly to market signals and sign posts to ensure we remain industry, leading and resilient as we continued to grow shareholder value.
I'll now turn the call over to Don will provide more details on our first quarter results and our financial position gone over here.
Thanks, Ross and good afternoon, everyone.
As outlined in our results issued earlier today net income attributable to common shares is $1.15 billion per dollar 22 per share in the first quarter of 2020 compared to $1 billion or dollar nine per share the same period in 2019.
First quarter results included a positive $281 billion income tax valuation allowance release, following a reassessment of deferred tax assets that are deemed more likely than not to be realized as a result of our decision to proceed with Keystone XL.
This was partially offset by an incremental after tax loss and $77 million related to the Ontario natural gas fired power plants held for sale.
First quarter 2019 also included certain specific items outlined on the slide and discuss further and our first quarter 2020 report shareholders.
Specific items as well as on realized gains and losses from changes in risk management activities are excluded from comparable earnings.
Comparable earnings in the first quarter rose by $122 million to 1.1 billion or $1.18 per share compared to $987 million or dollar seven per share in 2019, representing a 10% increase on a per share basis.
Turning to our business segment results on slide 14.
In the first quarter comparable EBITDA from or five operating segments was $2.5 billion $152 million increase compared to 2019.
Canadian natural gas pipelines comparable EBITDA of $597 million was 41 million higher than the same period last year, primarily on account of increased rate base earnings as well as flow through depreciation and financial charges on the NGL system from additional facilities placed in service.
This was partially offset by lower flow through income taxes on both the NGL system and the Canadian mainline as a result of accelerated tax depreciation measures enacted by the Canadian Federal government in June 2019.
NGL system net income increased $22 million compared to first quarter 2019, as a result of a higher average investment base and continuing system expansions and reflects an ROE of 10.1% on 40% deemed equity.
Net income for the Canadian mainline decreased $5 million year over year, largely due to lower incentive earnings.
You asked natural gas pipelines comparable EBITDA of 766 million U.S. EUR 1.32 billion Canadian in the quarter rose by $36 million U.S. or 60 million Canadian compared the same period in 2019.
The increase was mainly due to contributions from Columbia gas and Columbia Gulf growth projects placed in service, partially offset by the sales certain Columbia midstream assets in August 29 team.
Mexico natural gas pipelines comparable EBITDA of 198 million U.S. or 269 million Canadian.
As 88 million U.S. or 123 million Canadian about first quarter 2019.
The increase was primarily due to higher earnings and certain to Texas, including U.S. $55 million associated with one time fees realized as a result of the successful completion of the project.
The contract targets as well as fees received from operating the pipeline.
Liquids pipelines comparable EBITDA declined by $118 million to 445 million in first quarter 2020, driven by lower Uncontracted volumes on the Keystone pipeline system.
<unk> decreased contribution from liquids marketing activities due to lower margins and reduced earnings as a result of the partial monetization of northern Courier in July 2019.
Power and storage comparable EBITDA rose by $43 million year over year to 194 million due to higher Bruce power results, which were augmented by increased realize power price and higher production, resulting from fewer outage days.
Partially offset by losses on funds invested for post retirement benefits.
The higher contribution from Bruce power was modestly offset by lower Canadian power results largely due to an outage at our Mcarthur River Cogeneration facility, which began late fourth quarter 2019, and the sale of the cool generating station in May 2019.
For all our businesses with U.S. dollar denominated income, including U.S. natural gas pipelines, Mexico natural gas pipelines inputs of liquids pipelines.
EBITDA was translated into Canadian dollars using an average exchange rate of 1.3 core.
In first quarter 2020 compare similar to the rate used for the same period in 2019.
As a reminder of our approach to managing foreign exchange exposure. Our U.S. dollar denominated revenue streams are partially hedged for interest on U.S. dollar denominated debt. We then asked if we manage the residual exposure on a rolling one year forward basis with realize gains and losses on this program reflected in comparable interest income and other.
Now turning to the other income statement items on slide 15.
Depreciation and amortization of $630 million increased $22 million versus first quarter 2019, largely due to new projects placed in service in Canadian natural gas pipelines and U.S. natural gas pipelines.
Depreciation and Canadian natural gas pipelines is recoverable and tools on the flow through basis.
Interest expense of 578 million for first quarter 2020.
Was 8 million lower year over year.
Early due to the net effect of higher capitalized interest related to coastal Gaslink and Keystone XL.
Lower interest rates on higher levels of short term borrowings and long term debt issuances net of maturities.
If you do see decrease up $57 million for the three months ended March 31, 2020 compared to the same period and 29 team.
Largely due to Columbia gas growth projects placed in service during 2019.
And the suspension of recording NCTC effective January Onest 2020 onto a due to continuing construction delays.
Comparable interest income and other increased by $19 million in first quarter versus 2019, primarily due to unrealized foreign exchange gains on peso denominated deferred income tax liabilities.
During the weakening of the Mexican peso first quarter 2020.
Income tax expense includes in comparable earnings was $211 million in first quarter 2020, compared to 228 million for the same period last year.
$17 million decrease was mainly due to lower flow through income taxes on Canadian regulated pipelines inclusive of a lower Alberta corporate income tax rate.
Partially offset by lower foreign tax rate differentials and increased pretax earnings.
Excluding Canadian regulated pipelines.
Income taxes or a flow through item and thus quite variable along with equity. If you do see income in U.S. and Mexico natural gas pipelines, we expect our 2020 full year effective tax rate to be in the mid to high teens after normalizing for these items.
Comparable net income attributable to non controlling interest of $96 million into first quarter decreased by $5 million related to the same period last year, primarily due to lower earnings and Tc pipelines LP.
And finally preferred share dividends were comparable to first quarter 2019.
Now turning to slide 16.
During the first quarter, we invested approximately $2.3 billion no capital program, which reflects 100% of coastal Gaslink spending and then close of the equity sale, the KKR and Aimco expected in the second quarter.
Capital expenditures were largely funded was comparable funds generated from operations of $2.1 billion, along with cash on hand in notes payable.
As everyone is acutely aware capital market conditions have been significantly impacted by coal that 19 resulted in periods of dramatically heightened volatility and reduced liquidity.
In response to this we secured approximately $6.6 billion of additional financial capacity in early April through long term debt issuances in Canada and U.S. on compelling returns.
Along with the establishment of U.S. $2 billion incremental committed credit facilities.
A solid financial position was bolstered earlier this week with the completion of the disposition of our three until your natural gas fired power plants, so $2.8 billion.
The sale will result in the final estimated after tax losses $370 million of which 271 million was realized March 30, Onest 2020.
The remaining amount will be recorded on clothes and reflected in second quarter 2020 results.
These transactions have collected we added over $9 billion, an incremental liquidity over the past months.
Enhancing our financial flexibility and demonstrating our continued access to capital markets under stressed market conditions.
Looking forward.
Our financial strength will improve further upon completing the partial monetization of and establishing project level financing for coastal gaslink.
In late April we executed a credit agreement with the syndicate, the banks extending nonrecourse project level financing to fund the majority of the projects construction costs.
Credit facilities will be available to be drawn once conditions precedent had been met including the closing of the equity purchase agreement with KKR Aimco, which is expected to occur in the second quarter.
As was highlighted we have also secured government of Alberta support for Keystone XL.
Form of the U.S. $1.1 billion equity contribution and U S 4.2 billion dollar loan guarantee.
Now turning to slide 17.
This profit highlights our forecasted sources and uses of funds in 2020.
Starting in the left column or long term debt maturities of $3.7 billion.
Dividend and non controlling interests distributions of approximately $3.3 billion.
In 2020 capital expenditures, which are now projected to be approximately $10 billion with the addition of Keystone XL and reflecting 100% of coastal gaslink up to close the equity purchase agreement.
So the total funding requirements for the year to approximately $17 billion.
The second column highlights I'd would that sources of approximately $17 billion, including forecast internally generated cash flow of approximately 7 billion.
Proceeds from sales lunch or natural gas fired power plants and 2.8 billion.
The sale of 65% interest in coastal Gaslink and associated with project level financing, which are together expected to generate approximately 2.2 billion.
The government Albertans equity investment in Keystone, XL, a 1.1 billion U.S. or 1.5 billion Canadian.
And $3.7 billion long term debt that was issued in April.
With the completion of these finance securities.
There are effectively fully funded for 2020 and along with more than $13 billion of committed credit facilities in place and well supported commercial paper programs in both Canada and the less.
Physician to a should be navigate a prolonged period of disruption should that occur.
In conjunction with the Keystone XL F.I.D., we announced the dividend reinvestment plan will be reinstated in 2021 and 2022 to help fund our portion of the project spend profile.
Further to provide additional financial flexibility and supportive of credit metrics and overall capital program, we intend to file a 1 billion dollar equity shelf to enable an aftermarket equity issuance program, which will be utilized if and as deemed appropriate.
We continue to firmly believe there's value and maintaining credit ratings there at the top of our industry.
Now turning to slide 18.
In closing I offer the following comments are solid financial and operational results in the first quarter continue to highlight our diversified Lois business strategy and reflect the robust performance for both of Blue Chip legacy portfolio, along with the contribution of equally high quality assets from our ongoing capital program.
Our overall financial position remains strong.
Well placed to find a $43 billion secured capital program through resilient and drilling internally generated cash flow and an array of attractive funding options.
Our portfolio of critical energy infrastructure projects is poised to generate high quality long life earnings and cash flow for our shareholders underpinned by strong fundamentals.
Counterparties and premium service offerings.
As well as Germany, further attractive and executable and corridor opportunities.
That is expected to support annual dividend growth of 8% to 10% 2021.
In 5% to 7% organic growth thereafter.
Finally, we will continue to maintain financial strength and flexibility at all points of the economic cycle.
That's the end of my prepared remarks, I'll now turn the call back over to David for the Tonight.
Thanks, Don just a reminder, before I turn it over to the conference coordinator for questions from the investment community. We would ask that you limit yourself to two questions in order to give everybody an opportunity.
With that I'll turn it over to the conference coordinator.
Thank you. Please press star one if you have a question at this time, if you are using a speakerphone. Please lift your handset before making inflection.
And should you wish to camp for your question. Please press the pound.
Our first question is from Robert Cavalier.
Please go ahead, Sir your line is now open.
Hi, Thank you printer potentially comments today I've a couple of questions. The first one is on the pros force merger I just wanted to confirm it sounds like it was entirely due to cope with 19, but can you confirm that there were no issues related to supply chain management.
So no difficulty getting any equipment or anything like that and what was the response to the Oh of course Mercer Ocwen.
Hi, Robert it's a prince well I'll take that one so yes, I can confirm that the force majeure event was related to Ur Cobot 19.
You know a lot of the work taking place in that reactor is the and under close quarters.
With respect to our supply chain.
We've had a very modest.
Yeah.
A number of suppliers none of them critical with some some issues and we've actually had been working hard to resolve.
Those issues with that you're very small number of suppliers and we don't expect.
Any of those issues to us to interrupt progress for the project.
Okay and my second question maybe.
For us are gone.
Happy to see that Youve have confirmed the dividend growth outlook.
Despite the significant volatility in the markets.
Not to mention the fact that he's out of the major a growth project.
So.
I'm just curious as to.
You know what it might take to.
Shake the sanctity of the dividend growth outlook, and really what I'm getting are those whether or not.
I think you'll get to.
Good value for that premium dividend growth rate, particularly the it's a 10% 2021.
I'll start to address and maybe Don wants augmented as you know we could get long term view on our capital allocation policy, it's been and new unchanged for for almost two decades here.
We use 60% of our free cash flow and reinvesting our core businesses and we take 40% of it and we return it to our shareholders in the form of the dividend how we've maintained that sort of a payout ratio for a long period of time and debt and as you point out you don't necessarily get value at sports at all points in the cycle.
We believe over the long term.
Ability and predictability or is it valujet's its people and as a as we've said before and when we provided that guidance as of 8% to 10% through 2021, it was underpinned by growth.
Earnings and cash flow per share.
And that I have to be our plan to maintain similar payout ratios. There that we had in the past going forward and that I don't see any any any need to change that are any reason to change that dawn.
Yeah, I concur us.
Again, when we when we give dividend guidance, it's really fast long term perspective in mind and as we outlined at Investor day, 95% of or even a comes from regulated long term contracted assets battled increased to 98% when kids learns Keystone XL goes in service.
And we believe we have fairly solid visibility to the absence of Keystone XL EBITDA, that's largely walked in the $10 billion range at the end of this decade. So.
I get it speaks to the criticality of our assets and.
And just how how important they are to the north American economy. So we are comfortable.
With that guidance and Oh with what we consider.
Payout ratios that are eminently affordable and hopefully value.
Okay. Thank you and stay safe.
Thanks, Rob.
Thank you. Our next question from Robert Kwan from RBC Capital markets. Please go ahead. Your line is now open.
Good afternoon.
If I can start with a question on the NGL settlement, specifically just under the settlement agreements can you just talking about the treatment.
Variances as well as any impact of customer bankruptcies suffers achievements second.
Oh, the timing of cash true ups.
Sure and else it doesn't matter where on the system.
There is either volume variances are customer bankruptcies Gee, you that core system versus something.
Just like North Montney mainline.
Hi, Robin Stracey here.
So the revenue the revenue requirement agreement that we've just completed.
You know what I'd say as Ralph said earlier with an effort a collaboratively across the system I and you know really kind of an alignment of our interest so.
He think about it what it does is it good our customers can but through less incentives.
For told Chris said kind of expand prudently and to manage our told down which is what they were you know what they're they're really concerned about and for us. It gives us the assurances of the return on equity over a period of time or we do that expansion. So it's really around.
Making sure that were both aligned in the growth in the health of the basin as it comes to the more specific issues around what happened there are bankruptcies, rather it doesn't doesn't deal with those things specifically be tenants of the weight regulated system I remain completely intact under this agreement.
So I'll leave it there and you can press on that a little if any.
Sure I, just kind of one follow up so does that get parts I assume I guess part into a deferral accounts are you able to dispose of that.
During the agreement period or do you have to wait society or settlement to me to be done before to work it back into new range.
Total system the toll arrangement of determining talk on the disagreement things that would normally be.
What the what the incentive structure is it but we've established with our customers what what we would predict tools to be in the future and if we can work our capital program and our expenses in a manner that tool fall below that projected level than there are some benefits to us.
Thank you Lurlene depreciation and.
Tools come in above those baseline numbers I you know Dan the agreement can be open not the return on equity, but the agreement and the other provisions in agreement can be we visited there's also.
And incentive structure embedded in the agreement not dissimilar to what you've seen before and the Angie tell agreement.
Around core operating costs.
And so there's no specific.
Provisions around deferrals.
Got it.
If I can just finish turning to the liquids sits on Keystone and market lengths are you able to give an update as to why it's slows and specifically either price sensitive or interruptible slows our on both systems.
Hey, compared to where you were in the first quarter and then is there also an update on the distill analysis and the pipe that was for evaluations.
[laughter] through all that so it's here, it's Paul here on the on the first question.
All right Keystone system ex artist, Steve just about just under capacity.
And I recall with the spirit, we had late last year, we were going to be ramping up bomb throughout the first quarter. So we ran just below capacity we.
And that compares both the same as where we were Q1 of 19 and on a uncontracted a spot basis. We were slightly ahead of where we were in Q1 90 odd in Q1 20, probably about a.
Almost a penny higher.
On the sold in end of our system. This is where we saw a reduction in flows we probably had a boat.
Probably had a boat Uh huh.
Let's call it.
Three cents screen, a half cents lower earnings generated from our market Lincoln <unk>.
Q1 20 versus.
Q1 19.
On the.
Bill Cosby, what we've.
What the independent.
It's failure analysis determined that the the failure was the result of a.
<unk> due to all well defect with the pipe from the manufacturer.
We have developed in the process of developing technology that will allow us to detect these types of features elsewhere in the system and a we continue to do.
Other maintenance and integrity work across the entire system as a result of the and bird.
Spell I think what that's going to me for us going forward on Keystone system.
As a we'll probably see flows in Q2 Q3.
At the same as we saw in Q1 as we looked at various integrity programs on the system.
[noise] seven with public so slot slows that's really sanctioned no more of the work you're doing rather than.
Yes.
In demand.
[music].
Yes kind of the combination of all that I see the.
Keystone continues to enjoy.
Hi demand notwithstanding some of the supply cuts, we've seen not particularly in Alberta.
We have a lot of features.
Shippers find attractive as far as our ability to get to the market quicker with a competitive toll.
And well also see more light volume come into the system.
And with our full line design, we have exceptional product quality, which becomes even more important as you move on later volume. So we continue to.
See good volumes to the system.
But there will be I think extra capacity available to us with some of the supply decreases were going to take advantage of perhaps some of those lower supplies and bringing some of that maintenance and integrity work for it so could it be a bit of a combination.
Thank you very much.
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Thank you. Our next question is from Jeremy Tonet with JP Morgan. Please go ahead. Your line is now open.
Hi, good afternoon.
Just want to start off with.
Thank God counterparty concerns a big issue in the market place right, there and you guys seem to be in a pretty good position.
I think you talk about being kind of and material percentage of your counterparties there, but I was wondering if you could share a bit more color as far as percentage wise or any other details as far as what your exposure to investment grade versus non investment grade is right now and we're talking here you know producer customers in different basins do you sense any kind of stress there.
Expectation bancorp's in general how that might impact you if that were to come to fruition.
Jeremy its Tom here I'll start out then I'll turn it over to my colleagues feel a little more color in their specific business areas.
Yeah, our customer base is heavily investment grade and I think the value of the service is indicated and a couple of ways. One is just a high capacity utilization we continue to see here.
And things like the NGL deal where.
We have supply push customers for the most part willing to sign a five year, a five year deal with us to or to underpin the system there.
Where we where we have I guess more strain counterparties or lesser investment grade counterparties be concentrated more on the supply push side and the WCS b and in Appalachian.
But to date, our revenue cycles aren't showing anything anomalistic or in terms of payments and again system utilization remains very high and these are very advantage basin. So maybe I'll turn it over to up to stand and Tracy to talk a little more color on their respective come.
Summer basis.
Hey, Jeremy this is Dan.
Thoughtful question and why we have seen several producer downgrades over the past couple of weeks overall, our view of how we're handling this study for exposure really hasn't changed.
We're still holding about $1 billion of collateral predominantly in the form of letters of credit.
Still seeing high load factors are with more than half of our large producers flowing at load factors in excess of 90%.
Tells us that producers are continuing to get proper value for that capacity that they hold on our system typically given the fact that Pico pool, the Columbia gas trading point trades at a premium to but typically when two or Dominion South point.
Many of our producers have attractive hedges in place for 2020, and the recent price right up we've seen on the yet the Nymex curve for 21 in particular, where prices are up almost 40 said are not only can allow for prior cash flow and realized prices, but also better hedge positions for 2021.
More good news.
Capital markets seem to be opening up to the producers and we're seeing some transactions being completed and some producers are using these proceeds to the buyback debt at this kind of values or Q3 purchase outstanding equity shares.
And that in turn is driving a equity valuations up a pretty much across the board over the past 30 days or so so our producer exposure and argue continues to be manageable and it's it's good to hear some positive news on that front with respect to our overall customer mix at least within the U.S. gas business.
You could generically think of US is having about a third of our portfolio being covered by end users a third producers and that a third third marketers at least for the the top 40 of our customers that generate about 70 or 75% of our remedies.
Jeremy I'm, a little bit on out on the doesn't see it be fan Rita.
Yes, I'm Patrick.
I had a little bit on the WCS be much of the same about town.
No two thirds of our customers our revenues rather come from investment grade customers and nearly 90% use credit worthy and for those others that are out there we have collateral percentage to turn to both the tariff in the contract so without a doubt, though we're watching very closely and we do know that there are some of our customers.
That they're struggling with some near term issues on echo evaluations and liquidity. The federal government of course in Canada has announced a program that we think offers the prospect of helping some of that in the near term and we believe and hope that of course. This in the near term issue because it's down to the fundamental gas right now.
Our largely unchanged if you look at the the price curve as you go out this is not a bad place to be right. Now so we are positive.
And Jeremy its Paul here, maybe I'll, just give it better visibility than on the on the liquid side on the Keystone shippers, we have a small number of all large credit worthy investment grade counterparties. The vast majority are integrated well they have arrangements in place to move productions to doing that.
Associated refineries.
They have.
Say that probably weighted average triple B plus range, so generally well capitalize and diversified shipper group.
Thank you. Our next question is from Linda I picked dealing with TD Securities. Please go ahead. Your line is now open.
Thank you.
Just wanted to get a better understanding of how we might think of the path forward for Keystone XL to the extent that you're running some scenarios potentially I'm just wondering at what point the projects progress might be bottlenecked, if the permit 12 issue its not resolved and.
Starts to become on the critical path.
And maybe you can walk us through some understanding of where on the U.S. route what percentage potentially crosses wetlands and waterways and what work could be done.
In the U.S. in advance of resulting not permit specifically.
Hi, Linda this is a bevan I'll take that question.
So yes, as as you say that district Court and Federal District Court in Montana [noise].
Okay did our nationwide permit 12 on April 15 on the 29.
We filed a motion to state that order.
We have a number of options that were working with respect to.
During.
Both the regulatory and legal aspects of.
Of that as as you are likely well aware that nationwide Kermit 12 is utilized by many industries across.
The United States for any such.
Utility related type project that crosses a waterways. So we are working those options and feel like we have a our strategy formed there and it will be it will evolve to the circumstances with respect to the scope, we had always anticipated and.
The need to be agile than our construction management in our planning and to have the availability of of Optionality of scope through the balance of the construction windows.
And so as we're continuing even today to progress the border crossing which is.
Ahead of schedule.
We are moving pipe a round a pipe yards are continuing camp construction and looking at the various pumps stations and pipe spreads that we could achieve in the event that we're completely.
Blocked by this with this current ruling or current situation.
To your question on how much of the right away is it would prohibit us to advance there are there is an ability to pursue.
Individual permits there are there is the ability to advance.
Construction in different ways and avoid certain routes.
Those all come with income mental adjustments to the project that were considering and weighing against the alternatives, but we do believe that are current plans today.
Obviously, our preferred path as to March forward with the the spreads that we have identified for the U.S.
But we do maintain that we will be able to complete a significant amount of work in the United States in 2020, even if it isn't.
The same scope under which we began the year.
Just also want to comment Linda that we have had the ability to progress well in Canada and those they activity in Canada will not be subject to those that nationwide permit 12.
That's very helpful context, thank you.
Maybe just a bigger picture question and I realize it's early days, but I'm wondering if the board and management have put some thought to how a this pandemic and some of the industry challenges might prompt Tc energy to reassess their approach to a long term strategic plan and focus whether it be potential change.
<unk> consumer behavior preferences government policy or regulations potentially shifting in markets that you operate including a certain government support for certain parts of the industry and you know and I guess within that I guess, it's unknowable in terms of the effects the long.
From a sex we know there will be significant but I'm just wondering if it might warrant a bit of a permanent shift in how you approach your strategic priorities.
Yes.
And I guess it is early to address and.
Pretty early to determine whether or not there is any shift required in our long term plan.
I think whats with evident I'm over the last few weeks is then you know the critical nature of what we view I think is all of our business. You know meets your pointed out every part of our system is operating at a high load factor as well you know every part of our construction program across North America had been beams.
Essential service and so while they are out there that debate will continue in terms of or the form of energy that would be required going forward at Theres. No question that you know that that's the man.
For reliable affordable energy will continue for some time to calm and owning existing infrastructure and footprint will be a huge advantage in that capturing back growth. So I don't think that we got the current time razzing any shift in strategy, but maybe more just a reconfirmation of what we've been focused on is that.
Demand for energy will continue to grow and and that we're looking at the at the most efficient way of.
Achieving that and dad, where we began around our existing footprint in core door seems to be a.
Hey, doable thing and I suspect yeah.
I look forward it will become even more doable, obviously they'll come or protocols will have the adjusted on a construction sites in the unique coming weeks and months time, we've been introduced the protocols that have been not required to date I expect to see more of those I, but we're seeing no pushback at all in terms of thinking.
Instruction and I guess, maybe the last point that would make is we're hearing from governments, both local and state provincial and federal.
And that that construction ready projects are going to be critical to I'm, putting people back to work as a as we are emerged from this crisis and then be the knock on effects that come with economic stimulus people buying.
I find your parts and pieces tires trucks are all of those things are going to be huge boost to the economy in at least what we're seeing today and no pushback in terms of that tens of thousands of people that were going to have on the ground working so I'd say directionally all things point to a reaffirmation of our strategy as a poised as opposed to.
A change in direction.
Thank you.
Thank you next question is from Andrew Pesky with could you. Please go ahead. Your line is now open.
Thank you good afternoon, though we've obviously seen a number of severe dislocation cycles. Before this one is obviously unique in the number or specs and most dislocation cycles are seeing that DUC Raiders moved the goal posts various times.
You've had a situation of growing the business deleveraging the company, but I guess the questions or where do you really want to land that like what metrics are focused on.
What credit ratings are you focused on.
Hi, Andrew it's Darren here.
There's really been no change to our thinking here, we continue to target long term debt to EBITDA in the high fours and and FFO to debt in the 15% area. We think that's appropriate for a business risk or.
The corporate structures corporate structure that we have.
And the right balance between equity that we believe that try and get weights into the current ratings that we have and we have recently.
Leading up to the Keystone XL announcement engage the rating agencies or in a fairly extensive review of our business and our plans to execute that project.
And you saw what came out of that so.
Side from moving goalpost, which we have seen before.
Or retroactive a decision, making or macro calls, we're fairly comfortable with with our capital structure with our coverages and we look to the rating agencies are recent pronouncements. So that you know.
This what we have in front of them should keep us at the very top end of our industry, which is where we want to be in terms of a credit rating.
That's helpful. And then maybe just one follow up and it's a good keep detail of the notes the financials and it's really just on the derivative marks obviously, there's a lot of volatility in Q1.
And the marks have you had the transitional quite a bit but maybe just on the interest rate derivatives.
What portion of the interest rate derivatives were for existing versus plan to issuance over the course of bigger.
Yeah. The Vietnam are we in Q1 is through we this year once we executing the coastal gaslink.
Joint venture agreement, we entered into interest rate hedges.
On the construction financing project financing for that project, which will get rolled into the Oh. The final financing an amortized over the life of those of those instruments. So that is the big change in this quarter that those positions were into entered into in very early 2020.
That's great. Thank you.
Thank you. Our next question from Robert Hope from Scotiabank. Please go ahead. Your line is now open.
Hello, everyone. Just one question for me.
I wanted to get a sense of how you're thinking about allocation of capital you look relatively fully funded for 2020, but you did add some liquidity and just wanted to thinking about your willingness to add on new projects or M&A.
In an environment, where you significantly out into your backlog with Keystone XL, which does.
Some upward pressure on your metrics over the next two years.
Merit.
I think Youve pointed out correctly me, we've got a lot on or swayed and a pretty good visible plan to continue to growing cash flow earnings and dividends over the coming years and that said I mean, we'll always you know the reason that we've maintained.
I would say that the best credit rating ratings in the industry and ensure that we have some financial flexibility and continued access to markets to be able to act. If it's good opportunities that add shareholder value arise, where we're not actually on the on hunter for any of those things right now, but obviously for the right circumstance that would dad would add shareholder value we would we would.
But but currently we have are pretty comfortable with their plans. We've got lots to do I think it's been pointed out again by all of our business leads and dawn you all of our businesses underpinned by strong fundamentals first our growth projects that theres still needed in the market. We obviously retested that here in the short run with all of our customers do.
So I want us to continue to build and the answer is been unequivocally, yes backed by strong credit worthy counterparties construction progress will be a potentially a little bit slower than we anticipated, but that you know because there are great regulated or or underpinned by long term contracts are pretty good visibility cash flow and earnings so.
I've got a great plan in front of US our focus right now is on execution, but you have the right things come along we will we will happen to portfolio I certainly expect that we will see continued smaller projects that you know those 500 million dollar 2 billion dollar additions to our footprint.
Can you do come to us at those haven't haven't stopped coming and so I would you can expect DSD able to continue to try to add those the portfolio here over over the coming years in terms of large scale, you know new Greenfield and large scale build I don't really see that on the horizon, we don't have.
Ah you know many of those in our portfolio today or the kinds of things we're shooting for a more niche oriented things like the pump storage project in Ontario, those kinds of things would be on the larger scale.
But but they are out there quite a few years from from today.
I don't know Don if you want to add anything to that.
Yeah, I'll just a couple other comments here, even if you do and anything that's that's greenfield in nature brownfield. It's it's generally by the time you get through a permitting process a couple of years out for your spending any significant capital on that opportunity and a from a credit metrics perspective by embarking on Keith.
XL.
The mix and financing that we've we've indicated here, which is pretty much all subordinated it's it's turning on the drift and a hybrid issue.
We Ah we don't see huge upward pressure on their credit metrics, our debt to EBITDA temporarily goes into a call for low fives.
Through or we hope as a compressed by our construction period, there and then returns back into the high fours ones Keystone XL is completed.
Okay. That's great. Thank you.
Thank you our next question.
Jeremy Tonet JP Morgan. Please go ahead.
My questions have been addressed so thank you.
Thank you our next question extend.
With Bank of America. Please go ahead. Your line is now open.
Thanks, Good afternoon, if I could go to Keystone, XL, and Montana and on permit 12 I was wondering if you could provide your thoughts on.
The next watch items for investors.
And any sense of potential delay in some of the options that truly exploring.
Sure. Thank you. This grew seven speaking as each of the.
The the.
You know the long term potential delays that any of these kind of very omnibus type huh.
Filings or motions to vacate permit that broad could have up to a year delay on the ultimate project and much like many of the.
Many of the circumstances that weve faced historically, however, weve been mitigating those types of impacts by way of pursuing other forms of the scope in parallel.
Which was what we had anticipated prior to taking a Friday is that.
We have been following the regulatory standards and the rule of law and we feel that will ultimately cure the issues that are present in front of us right now and be able to continue pursuing activities.
Don't.
I believe it's appropriate for me to comment to ditch to speculate on what the what what maybe the next to what an another turn of events could be right. Now we feel we have our plans in place to either constructive scope that we had shared with the market or we have an alternative plan.
That is well underway to satisfy another thing that project forward.
Appreciate it and.
Just on that if I could have.
Hi, skew a big picture questions could you speak to the M&A environment. Currently how do you compare this cycle to previous once a any broad thoughts.
I guess, maybe does that as I think about your sort of M&A cycle are.
We tend to be counter cyclical in our M&A activity and so what we look for his opportunities to buy high quality assets at reasonable prices. Our experience has been historically that those potentially come available in these kinds of have tightened liquidity where its a.
And if they lower costs form of accessing liquidity to sell assets than maybe some of the other options that they companies might have so I think thats, where opportunity might lie for us again and that you had in the current time or not we're not seeing that but you know as you think about the times we've acted in transacted in the past its been at those times, where.
Yeah, we've been able to use our strong competitive financial position when others didn't have that that same capacity to act in by.
Really good assets at at reasonable prices. So it has some of the at the current environment has some of the attributes of what we've seen before the financial crisis and and the like add that we've seen in the past that to add to date, we haven't seen anything and now come available.
Thank you.
Thank you. Our next question from Patrick Kennedy with National Bank Financial. Please go ahead. Your line is now open.
Hi, Good afternoon, everybody I'm just wanted to go back to the discussion surrounding force majeure due to covert.
But thinking more specifically about your contracts on the base Keystone.
As mentioned, Paul we haven't seen any real volume reduction yet but of course.
Depending on how deep producers cut capex and shut in production over the coming months.
I know its hypothetical at this point, but I'm just wondering if you can confirm what exposure you might have within your take or pay agreements assuming a shipper does try to declare force mature on Keystone.
Patrick under our take or pay contracts. There is no provision for forces your bid for supply or production upsets or otherwise.
And I think where we set.
With with Keystone when you consider the.
Markets, we serve when you consider all were.
Advantages within the marketplace as far as the protocol product quality, the direct path the visibility into a delivery times.
I feel confident that we will continue to run that high volume then you consider the take or pay nature of our contracts and being 94% contracted on Keystone I don't foresee any.
A significant reduction in the throughput notwithstanding what we're seeing on the supply side and not well notwithstanding what we've seen with some of the challenges with some differentials.
Okay, great. Thanks for that clarification.
And then on the liquidity fronts and looking at the upcoming sale of coastal Gaslink.
Is that the project financing in place, but just curious what conditions and consents to close the deal.
The at risk in this environment.
Are there any construction milestones outstanding by the end of the quarter or.
Any clarification required by the buyers with respect to the deal between auto on and their editor Chiefs. Just just wondering if there could be any speed bumps to a delay closing at this point.
Hi, its dawn well start out by saying that the project financing. The construction facility has closed in escrow so.
We believe we're on track to completing the equity purchase agreement in late May and the conditions precedent in the path to closure there's really.
Nothing, particularly unusual when there are other than normal conditions precedent and and the passage of notification periods.
Patrick it might be interesting not just to note as well that the agreement you reference between the federal government government of.
British Columbia, and the wet seal is not related in any way to this project. It speaks to we're told the broader issues around a REIT can title.
Okay. That's great. That's it for me guys. Thanks.
Thank you next question is from Shneur Gershuni Gershuni from you'd be at please go ahead. Your line is now open.
Hi, good afternoon, everyone looks like questions have been asked and answered at that stage at this late stage, maybe I just wanted to revisit the dividend questionable jobs at the very beginning I do appreciate.
The color commentary you gave with respect to the targets over the longer term period, but I was kind of wondering if there was a more vigorous debate if the board level. This this time around just given the impact of probably my team. The fact that the could last longer then when people are forecasting and contrasting now.
With the fact that you're now turning to drift back on and we're talking about an ATM and so forth. In so you know did it makes sense to may be lower the targets a little bit in the near term and sort of we review it or or.
It was that really not part of the discussion at all.
You know note wasn't part of the discussion and what.
Our the discussion and around dividend really hinges on that the visibility and sustainability of cash flow and earnings growth going forward and as we sat down with our board here here over the last couple of days and we looked at that cash flow of the base business any happy.
Potential impacts on that going forward.
The impacts on our ability to actually get capital in the ground and that and get the a the projects that we've got a in progress that cash flowing and at the current time, we don't see any disruption you. Your neither of those and therefore, I mean, no impact on on bear view a structure as to what are our dividend.
Should be on on a go forward basis, when you think about something like a Keystone XL.
And the.
The issuance of some equity and is a way to finance a long term projects that will bring and you know a long term cash flow and to our to our shareholders. So it's very you know, it's an accretive and project and.
In terms of and the risk capital going in between now and Dnbi year. For example, I know that's primarily covered by buying equity injection from the Alberta government. Once we get post the end of year at two thirds of the capital comes from the the credit facility, that's provided from and be a the government of Alberta and as.
As Duane Don pointed out you know those are all mezzanine level and so these it shouldn't impact our our credit worthiness in any way. So as we think about financing long term projects and we have never look to a young comparing or dividend growth rate and we never got a too far ahead of ourselves we've never.
[music].
Being I think two anemic, we found a place that as I said is about a 40% of our cash flow going back to back to our shareholders.
And then you're using the 60% to no to grow the company and that what we found is investing that 60%.
Has driven a growth rate of.
Seven or 8% over the last a number of years and we'd be able to augment that by doing.
Projects that could have a return that's greater than it's been about 8% than when you look at the accretive Miss as.
Keystone XL I, because we sort of look at the overall value to our shareholders. It makes sense for us to the financing in the way that we have suggested and not impairing our dividend growth rates and done enough you want to add to that but a business that I think that playing with your and a dividend.
Payout ratios on a short term basis and to try to and.
You know.
Get the best possible value out of the market had to give any instances in time is fraught with risk, we believe that long term consistency and disciplined around capital allocation.
Allocation program over the long term yield the best results for our shareholders and I think we've proven that out over the last 20 years as the as folks have come at us with different questions at different times in the cycle of whether we would accelerate or decelerate, our our capital allocation program and our dividend payout ratios and that we've stuck to.
To the discipline that we have and we believe that has produced a good long term shareholder value and stability.
So that definitely makes a ton of sense there maybe to just to follow up a little bit you know when they sort of think about North American midstream company. After that if anything else in Capex reductions I think you've got a buck that trend a little bit.
Is it more effective that your business tends to be more regulated in nature constructed in nature and there's really.
Not that kind of an adjustment process that you have to be and that's kind of a differentiating factor for Tc energy or.
How should how should we think about that as to how you can describe them as others.
Well again, I would I would I can't speak to others programs, but our focus has been on and at.
Assets that are underpinned by long term fundamentals and.
And you think of something like a at Bruce power or Keystone XL coastal gaslink.
On long term fundamentals were and we believe that that infrastructure will be used and useful and utilized for many decades to come and maybe a differentiating factors. We don't bet on that and we we have that reconfirmed with with long term contracts or rate regulated contracts where regulator approves.
On those assets for for the long term and when you look across our assets and our $43 billion capital program, we haven't taken commodity risk and and we haven't taken what I would call backend contract risk and I think those are two things that Oh people are probably struggling with right now is.
If capital projects are subjected to commodity risks and that you have the kind of volatility. We've seen you have to and adjust your programs accordingly, but if you think of what we're doing for the most park on the pipeline side as were building access more market access for a for customers the single greatest on impediment.
To a and.
Net back crisis has been not being able to build the infrastructure required to get to market and that and very wide differentials and so as we went back to our shippers and the Best example, I would have is that it is the five year agreement that we just put in place with our shippers that gives us the stability and to continue to attract.
Capital to build the grass that they need for the long term.
And and and any can you just to reaffirm referred to as we understand that some of those shippers are facing you know near term liquidity issues that said that are fairly kids, but at the same time recognize that their long term interest through best served by you know us continuing it'll be infrastructure and to support the industry.
Over the long term, we believe the Western Canada. For example is one of the lowest cotton basins in North America, why the lowest cost basins in the world and that and it will continue to compete for market share going forward, but what they need market access to be able to do that so I think where we may be unique and but that's certainly the discipline that we've had in looking at.
Every project that we take on is it has to have those characteristics and I think by sticking to that discipline and has has served us very well.
Perfect. Thank you very much guides us stay safe and enjoy the retail.
Thank you too.
Thank you. Our next question from Matthew Taylor with Tudor Pickering, Holt and company. Please go ahead. Your line is now open.
Hey, Thanks, everyone and some 2020 earnings guidance I know, we're only one quarter in but pretty fast started out of the gate, 10% higher year over year I'm, just curious what parts of your business or most impacted called the 19 related or other weakness in the next couple of quarters that you felt like leaving the February earnings guidance.
Consistent with 2018 unchanged.
Yeah, it's Darren here.
Some pluses and minuses that largely net out.
Yeah the day.
Weve, so we've been expecting the onetime ish.
Benefit from the sort of Texas fees are that that's in there, but when you look at things like visibility to liquids marketing market Wink.
I've got some tax pluses and minuses et cetera.
We generally come back to a to where we started the year with earnings largely consistent with 2019. So it's a bunch of pluses and minuses, there's nothing I would say, particularly kobin related that's pervasive in that in that outlook right now we.
It's kind of studies goes with.
I'm limited visibility and just some pockets of the business right now.
That's great. Thanks dominant me one more housekeeping question, if I if I can on the 2020 Capex guidance of 10 billion does that does that include the expected slowdown I know you guys said, it's uncertain at this point in time button spending on projects like Bruce power in coastal Gaslink and then doesn't include the full assumption of utilizing the government.
Equity investment in 2020.
Yeah, it's starting again here. So we were at 8 billion in February and they can the annual report its 10 billion now they essentially the entire delta is the inclusion of Keystone XL.
In the vast majority of that will be funded by the government Albertus equity contributions so.
Both the uses and sources are up and largely that out there in terms of October related.
Slowdowns I wouldn't say, we've we've incorporated much in there because it's early days and we were not entirely sure how material. This this might be so that's something we'll look at and becoming coming weeks and months here as we assess the the restart conditions on our approach.
Our next any anything that that may change there, it's not necessarily supply demand related it is really how how fast we safely build things.
Within governmental and health authority regulations.
Thanks, So much appreciate it thanks for taking my question.
Thank you once again, please press star one if you have a question.
Our next question is from Michael the Peter with Goldman Sachs. Please go ahead. Your line is now open.
Hey, guys very thorough conference call mines that asked and answered much appreciated.
Thanks, Michael.
We have no further questions registered at this time.
Okay great.
Thank you and thanks to all of you for participating today.
We obviously very much appreciate your interest to TC energy, we look forward to talking to you again soon.
In the meantime, obviously, we wish you and your families could help.
No.
Thank you. The conference has now ended please disconnect your lines at this time. Thank you for your participation.
This conference is no longer being recorded this conference is no longer being recorded known as you put modest coffeehouse it that WP.
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