Q4 2022 TC Energy Corp Earnings Call
Speaker 1: I.
Speaker 1: I paradiz par off ment proble why we.
Speaker 2: Thank you for standing by. This is the conference operator. Welcome to the TC Energy 4th quarter 2022 financial results conference call. As a reminder all participants are in listen only mode and the conference is being recorded. After the presentation there will be an opportunity to ask questions.
Speaker 2: To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star then 0. I would now like to turn the conference over to Gavin Wiley, Vice President Investor Relations. Please go ahead.
Speaker 3: Thanks very much and good morning everyone. I'd like to welcome you to TC Energy's 2022 4th quarter conference call. Joining me today at Francois Portier, President and Chief Executive Officer, Joel Hunter, Chief Financial Officer, along with other members of our Senior Leadership Team. Francois and Joel will begin today with...
Speaker 3: and comments on our financial results and operational highlights. Copy of the slide presentation that will accompany the remarks is available on our website under the Investors' section. Following their remarks, we will take questions from the investment community. We ask that you limit yourself to questions. And if you remember of the media, please contact Jamie Harding.
Speaker 3: Before Francois begins, I'll remind you that remarks today will include four of the constations that are subject to important risks and uncertainties. For more information, please see the reports filed by TC Energy with Canadian Securities Regulators and with the U.S. Securities Exchange Commission. Finally, during the presentation, we refer to certain non-GAAP measures that may not be comparable to similar measures presented by other entities.
Speaker 3: These measures are used to provide additional information on TC's operating performance, liquidity, and its ability to generate funds to finance its operations. A reconciliation of various gap and non- GAAP measures is contained in the appendix of the presentation materials. With that, I'll turn it over to Francois.
Speaker 3: Morning everyone. In the fourth quarter of 2022 we continue to deliver strong utilization and availability across our system when people need energy most.
Speaker 3: everyone. In the fourth quarter of 2022 we continued to deliver strong utilization and availability across our system when people need energy most, setting multiple records along the way.
Speaker 3: And by extension, we also achieved record financial results in 2022, including a 6% year-over-year increase in comparable EVA.
Speaker 3: We see this positive momentum continuing into 2023 and expect our industry leading $34 billion secured capital program.
Speaker 3: and portfolio of high quality utility like assets will continue to deliver sustainable cash flow growth.
Speaker 3: We are reaffirming our 2023 financial outlook with comparable EBITDA expected to be 5 to 7% higher than in 2022. And we've increased our dividend for the 23rd consecutive year.
Speaker 3: We are advancing our $5-plus billion asset the Vestiture Program that will provide funding for our portfolio of high-quality growth opportunities while at the same time accelerating our deleverging.
Speaker 3: While 2022 was a record-setting year in many ways, we were faced with challenges. On December 7th, we activated our emergency response protocols after detecting an oil release on our Keystone system.
Speaker 3: Our priorities are clear. Keep people, the environment and our assets safe every day.
Speaker 3: Series events such as this are never acceptable.
Speaker 3: From the initial detection to valve isolation, it only took seven minutes to shut down the pipeline. The response from our front line was nothing short of exceptional. And I want to thank our team for their incredible preparation, training, and decisive action.
Speaker 3: I also want to thank the community of Washington County, Kansas, who welcomed and cared for our teams on the ground.
Speaker 3: The collective response allowed us to safely return the majority of the system back into service within seven days.
Speaker 3: And we replaced, repaired, and restarted the remaining cushing segment within three weeks.
Speaker 3: We continue to diligently restore the area to its original condition and have recovered 90% of the release volume.
Speaker 3: We continue to investigate the root cause of the incident and we are committed to apply those learnings going forward.
Speaker 3: While our primary focus remains safe resumption of operations, we do expect to continue to fulfill our Keystone Pipeline contractual commitments, and we do not anticipate a material financial impact on our 2023 comparable EBITDA outlook.
Speaker 3: The value of our liquid's business remains high, reflecting its significant free cash flow generation, direct link between critical markets, and additional in-cord or growth opportunities.
Speaker 3: As an example, the Port Netch's Link Project is expected to be in service in the first quarter and will provide last mile connectivity to North America's largest refinery.
Speaker 3: In our US natural gas business, we achieved an all-time delivery record of 36.6 BCF on December 23rd and in 2022 our average daily volumes increased 5% year-over-year.
Speaker 3: In 2022, we placed approximately 2.1 billion US of projects into service.
Speaker 3: The majority of those were aligned with increasing our share of US LNG feed gas deliveries from 25% to about 30%. And we plan to increase our market share to 35% in a growing market over the next five years.
Speaker 4: This month, as evidence of that,
Speaker 4: We used our competitive footprint to sanction the 1.4 BCF per day extension of our Gillis Access project to further connect the Haynesville Basin to Louisiana markets, including the rapidly expanding LNG market.
Speaker 4: In Mexico, our first-of-its-kind strategic alliance with the CFE allowed us to resolve arbitrations and integrate multiple pipeline systems into one.
Speaker 4: The addition of the Southeast Gateway Pipeline also provides an opportunity to increase our total return on invested capital once it's in service.
Speaker 4: And I'm pleased to update that we are tracking to both schedule and cost on Southeast Gateway.
Speaker 4: We recently completed a critical path milestone by executing the main land acquisition agreements required for landfalls and compressor stations in Veracruz and Tobasco.
Speaker 4: We will continue to provide progress updates throughout the year for this strategic pipeline that will support delivering vital natural gas supply to the growing central and Southeast regions of Mexico.
Speaker 4: In Canada, our NGTL system continued to perform very well, with average deliveries up 6%.
Speaker 4: to 13.4 BC FAD compared to 2021. In 2022, we placed $3.2 billion of capacity projects into service, throwing our NGTL investment base like 12% year-over-year.
Speaker 4: And we expect to place approximately 3 billion of additional facilities into service in 2023.
Speaker 4: Earlier this month we had announced our revised cost estimates for the Coastal Gas Link project at approximately $14.5 billion.
Speaker 4: The project has now reached 84% overall progress, and we have line of sight to our mechanical completion target of year end 2023.
Speaker 4: While we have faced significant challenges, our teams in the field are working tirelessly to complete the project and the highest safety and quality standards in the pipeline industry while executing the remaining scope at the lowest possible cost.
Speaker 4: In our power and energy solutions segment, we produced exceptional results with 2022 comparable EBITDA up 36% year over year. And this segment continues to play a greater role in our diversified portfolio of energy assets.
Speaker 4: From an operational excellence standpoint, our cogen operations had strong performance that resulted in peak power plant availability during the coldest days in December , where Alberta saw record power pool prices.
Speaker 4: Bruce Power achieved 87% availability in the fourth quarter, while the unit 4 planned outage was completed 22 days ahead of schedule.
Speaker 4: We expect to place Unit 6 back into service in late 2023 following completion of its MCR program, while Unit 3 MCR is expected to commence next month.
Speaker 4: Unit 4, the third unit in the MCR program is expected to reach its final investment decision in the fourth quarter of 2023.
Speaker 4: Bruce Power remains the largest emissionless investment in our portfolio.
Speaker 4: Its capital requirements are largely funded from Bruce Distributions.
Speaker 4: And we expect it to deliver significant free cash flow following the completion of the MCR program as well as our project 2030.
Speaker 4: Thank you. I'll now turn the time over to Joel for a few comments.
Speaker 3: Thanks, France-Wa. Our fourth quarter 2022 results continue to demonstrate the solid execution and high utilization across our portfolio, with comparable EBITDA, up 12% year over year, and comparable earnings increasing 10%.
Speaker 3: Our assets are largely rate-regulated or underpinned by long-term contracts that provide certainty and stability of our cash flow through various economic cycles.
Speaker 3: Looking at comparable EBITDA, a main contributor to the outperformance was driven by the strength in our natural gas pipelines businesses in Canada, US, and Mexico.
Speaker 3: Growth in our Canadian natural gas pipelines business was largely underpinned by the increase in the NGTL system rate base as we placed $3.2 billion of CAUSEY projects in service during the year.
Speaker 3: In the third core of 2022, we placed the North section of the Villaderayas pipeline and the East section of the Tour of Pipeline in service, contributing to increased results for our Mexico business.
Speaker 3: Switching to Comparable Ernings, following the Strategic Partnership announced with the CFE in August , we began booking AFUDC on our Mexico projects under construction.
Speaker 4: The APDC amount will continue to grow as we execute our Southeast Gateway Capital Program.
Speaker 3: We are well positioned to deliver strong results in 2023 and continue to expect our 2023 Compilable EBITDA to be approximately 5% to 7% higher than 2022 and comparable earnings per common share to be modestly higher than 2022. We are confident in this outlook despite the environment of rising interest rates and inflation.
Speaker 3: Approximately 80% of our debt is fixed rate and has a weighted average maturity of approximately 20 years, an average pre-tax coupon of 4.9%. As such, changing interest rates have only a modest impact on our comfortable EPS.
Speaker 3: Strength in the US dollar, phenomenally serves as a tailwind. Given approximately 60% of our comparable EBITDA is generated in US dollars.
Speaker 3: Our 2023 US dollar net income is largely hedged at around $130, which minimizes the impact to our comparable EPS from fluctuations in foreign exchange rates.
Speaker 4: As we've stated before, we are largely insulated from inflation.
Speaker 3: Every 1% move equates to approximate a penny per share. Of course, any fluctuations in these variables in other factors could impact your 2023 outlook and will look to revive throughout the year if necessary. Looking to specific segments of our 2023 outlook.
Speaker 3: We expect our Canadian and Mexico natural gas pipelines businesses to deliver higher comparable EBITDA compared to 2022, largely driven by continued growth on the NGTL system and full year contributions from the VDR North and Tula East pipelines respectively. In liquids, I'll note that we expect comparable EBITDA to be more than a year old.
Speaker 3: Finally, we anticipate our U.S. natural gas pipelines and power and energy solution segments to be consistent with 2022. Additional information is contained in our 2022 annual management discussion and analysis. We deliver 6% comparable EBITDA growth in 2022 and expect similar levels in 2023 and through 2026.
Speaker 3: excluding the potential impact of asset sales. Similar to today, approximately 95% of our EBITDA will continue to come from regulated and long-term contracted assets, which provides a high level of certainty around our future cash flows.
Speaker 3: Our growth outlook is under pin by our industry leading $34 billion fully sanctioned secured capital program.
Speaker 3: Turning to a funding program.
Speaker 3: We've updated our sources and uses of funding that was shown at our investor day to incorporate the revised cost estimate for Coastal Gas Link.
Speaker 3: In 2022, we sanctioned $8.8 billion of projects that are expected to generate a weighted average unleavened after tax IRR that is above our historical range.
Speaker 3: While we expect to sanction additional high-quality opportunities, not-a-project sanctioned will have significant capital requirements over the next few years.
Speaker 3: We will be disciplined around capital allocation with a growl deferring certain project spending and finding capital reductions where possible without sacrificing operational safety or reliability.
Speaker 3: We are relating France-Wanda's earlier comment. We are confident in our asset-to-vesture program will allow us to accelerate our de-laveraging target.
Speaker 3: Our plans have us reaching five times debt to EBITDA in approximately 12 months, with 4.75 times remaining our target, that will provide us with additional financial strength and flexibility.
Speaker 3: Our sustainable cash flow growth will also drive our de-leveraging and support incremental long-term debt and hybrid capacity to further fund accretive growth opportunities.
Speaker 3: Where our capital spending exceeds our targeted annual range of $5 to $7 billion, we will continue to utilize capital rotation without the reliance on common equity.
Speaker 3: Participation in our dividend reinvestment plan was approximately 33% resulting in $607 million reinvested in common equity from the dividends declared in 2022. As a reminder, the dividend reinvestment plan is expected to be in place through dividends declared for the quarter-ending June 30, 2023.
Speaker 3: These two charts capture the resiliency of our value proposition. First, as Francois mentioned, TC Energy's board of directors has declared a first quarter 2023 dividend of 93 cents per common share, which is equivalent to $3.72 per share on an annual basis, representing a 3.3% year-over-year increase.
Speaker 3: This is the 23rd consecutive year of Commentshare Dividend Increases and truly reflects confidence in our outlook.
Speaker 3: Second, we have delivered strong results in sustainable growth in comparable EBITDA reflecting. The strength of our utility-like business model are focused on safety and operational excellence, the value of our long-term relationships and partnerships.
Speaker 3: North America's increasing demand for our essential services.
Speaker 3: We have created value despite market volatility and macro economic challenges.
Speaker 3: And I'm confident in our ability to continue to do so going forward. With that, I'll pass it back to France Walk.
Speaker 4: Thanks, Joel, just a few closing comments before we turn it over for questions.
Speaker 4: For 2023, our team is laser focused on execution.
Speaker 4: Firstly, maintaining safe and reliable operations is always our number one priority.
Speaker 4: Second, executing and progressing our major projects, such as Coastal Gas Link and Southeast Gateway.
Speaker 4: Third, enhancing our balance sheet by actively managing our capital spending and advancing our $5 plus billion asset divestiture program.
Speaker 4: And then lastly, ensuring operational excellence to drive higher returns on existing assets.
Speaker 4: Given the quality of our assets we see strong market interest,
Speaker 4: and expect compelling valuations.
Speaker 4: that we anticipate will allow us to size our investor program to support achieving our de-leveraging target and fully fund our secured capital program.
Speaker 4: Going forward, we will continue to use capital rotation, as Joel mentioned, beyond 2023, as a mechanism and as a tool to create long-term shareholder value.
Speaker 4: This is an exciting time for TC Energy. We have an unparalleled opportunity set, and I'm confident that we have the people and the financial capacity to prosecute our secured project backlog and continue to deliver superior long-term shareholder value. I'll now pass the call back over to the operator for questions.
Speaker 4: an exciting time for TC Energy. We have an unparalleled opportunity set, and I'm confident that we have the people and the financial capacity to prosecute our secured project backlog and continue to deliver superior long-term shareholder value. I'll now pass the call back over to the operator for questions. Thank you.
Speaker 2: We will now begin the question and answer session to join the question queue you may press star then one on your telephone keypad. You will see your tone acknowledging your request. We ask that you please limit your questions to two and if you should have additional questions to please re-enter the queue.
Speaker 2: If you are using a speaker phone, please pick up your handset before pressing to draw your question, please press star then two.
Speaker 2: Our first question comes from Rob Hope of Scotiabank.
Speaker 2: first question comes from Rob Hope of Scotiabank. Please go ahead.
Speaker 4: Good morning everyone. First question is on the ASSA sale process that are ongoing. As we've seen the cost increase for coastal gas line, have you seen kind of the or internally have you changed your views of which assets could potentially be for sale just given the higher capital requirement and then secondly on that, you know, just given the market conditions, have you seen any changes in the bidding?
Speaker 4: at a very sensitive time in those processes. I'm sure many of those accounting parties are listening to this call. And so we're going to refrain from commenting specifically on any process. But what I will tell you is we are confident in our ability to achieve our $5 plus billion program and even up sizing.
Speaker 4: to conclude that those goals are not achievable. Secondly, I would say that...
Speaker 4: Our focus as part of this process hasn't changed, which is we have an excellent quality business portfolio in terms of business risk. And we want to maintain that diversity and we want to maintain the quality of the portfolio. It's an important underpinning of our credit quality and the stability of our dividends.
Speaker 4: And we don't see the need to disproportionately monetize any portion of our portfolio that would affect its composition. Hope that helps.
Speaker 4: Nope, that's a great answer. Appreciate that. And then just moving over to Coastal, understand that you'd give us a nut data couple weeks ago. But we're midway through February . Can you provide an update on how the winter construction has gone for those key getting factors that can potentially push the project into 2024?
Speaker 4: Rob, this is Bebim, thanks for the question. Our progress has been very strong. We've had the productivity that we're seeing in the field has not only been very safe, but we had post-Christmas, the majority of our crews over 6,000 people returned to our right away.
Speaker 5: allows us to achieve our target, we believe, by the end of 2023 for a mechanical completion. We're introducing gas here shortly to Wild Lake Compressor Station. It's fully mechanically complete, which is a very significant milestone as that is where we'll introduce gas for the beginning of the commissioning of the project.
Speaker 6: You mentioned you expected that either that to...
Speaker 6: over the five times in 12 months I'm curious what
Speaker 6: factors or assumptions you're using to get to that. And is that a run rate expectation and it may just be a context. So what was your debt even though?
Speaker 6: for N22, adjusted to the credit rating.
Speaker 3: Yeah, thanks Ben for the questions, Dr. Stroll here. As we exited 2022, our debt EBITDA based on S&P's calculation was around 5.35 times as we exited the year. As we go forward here, again, the assumptions to get to the five times in the next 12 months.
Speaker 3: are asset sales obviously, that you know, friends will mention that we have a high-grade confidence around to achieve that interim target of five times. On a run rate basis so going forward nothing changes with the 4.75. That is our ultimate goal here for that diva. That's going to create additional financial strengths and flexibility for us going forward.
Speaker 3: And that is still our goal. But in the interim, we want to get to the five times in the next 12 months, and then ultimately get down to the 4.75.
Speaker 6: Okay, great. And your funding slides doesn't contemplate any equity beyond the drip.
Speaker 6: But I'm wondering to do that is what scenarios could draw to potentially extend a drip or even tap to extraordinary market?
Speaker 4: I'm going to take that one then. It's Francois.
Speaker 4: There are no scenarios that we can foresee that are realistic that we would be extending the drip or issuing new common equity in 2023. We have...
Speaker 4: We saw 6% growth in EBITDA in 2022. We see comparable growth in 2023. We have industry leading low-payout ratios of FGFO for our dividend. And when you have $110 billion approximately of assets.
Speaker 4: There's a lot of optionality in there for us to realize our divesture program of 5 plus billion. When you look at those different variables, we don't see a scenario and we are a resolute actually in not issuing any new common shares beyond
Speaker 2: the drip that runs through June of this year. Okay, great. Thank you. Our next question comes from Teresa Chen of Barclays. Please go ahead.
Speaker 7: Good morning, Kevin. I just wanted to follow up on the Council Guest link update with the activities done at this point. What is your confidence in that 14 and a half billion number? What would it cost to go beyond 15.7 if it does go?
Speaker 5: Well, into next year. So, Teresa, we, you know, we, at toward the end of 2023, we had a significant amount of scope to complete. We accomplished over 30% of construction last year, which was a significant accomplishment for the project.
Speaker 5: that we've...
Speaker 5: We've incorporated not only cost but schedule risks into our execution plan to deliver the mechanical completion this year. That said, it's a linear project with some very challenging activities. So we made an allowance for if in the event that we're not able to achieve the scope that we...
Speaker 5: have planned this year that we do anticipate that there could be activities that extend into 24 and 25 that being restoration and kind of clean up activities. In a range of estimates from that 14, 5 to 15, 7, that 15, 7.
Speaker 5: includes costs that extend well into 2024. So right now our focus is to safely deliver the project this year for our customers to be ahead of the plant. And we're confident that we can do that safely this year. Got it. Thank you.
Speaker 7: And then turning to Southeast Gateway, would you mind telling us, what percentage of the off-take goes to just focus versus power gen downstream just given the delays lack of clarity on the refinery start date as well as the below industry average utilization with the existing six PEMEX refineries?
Speaker 6: Yes, take this a stand. As things hit right now, no volumes are planned to go to the refinery of dust-bocus. And virtually all of it is going to go to power-gint facilities. That CFD is currently constructing.
Speaker 2: Thank you. Our next question comes from Linda Azargaylis of TD Securities. Please go ahead. Thank you. And then this is a follow-up to the Coastal Gas Link just to help us better understand.
Speaker 2: the next few months. At what point in March or April will you have a clear sense if you've completed all the critical path elements before your construction windows close and when would typically those windows reopen later this year?
Speaker 5: Linda, a great question. There are certain activities that are winter-only construction. Right now we've got plans in place to deliver those here in February and March, as you say. Some of those scopes.
Speaker 5: in the event that they're not accomplished would drift into the early 2024 timeframe if we're not able to accomplish them. We have though developed mitigation plans and have developed...
Speaker 5: a path to see good visibility into whether we'll be able to complete those here in the next month or so. The best visibility though that I can give you to whether we'll complete mechanically by the end of the year is probably in the June-July timeframe. There are some Winterscope items that even if we can't complete here on-
Speaker 2: an update on what contingencies and mitigants you have there. Have you entered into any new agreements with new contractors? Have you revised some of your commercial arrangements and realigned them with new realities for some of the other contractors? Can you just help us understand what's going on on that look stream?
Speaker 5: Yeah, great question. You know, as I mentioned earlier, the productivity last year and what we were able to accomplish was tremendous, but it put not only ourselves, but our contractors in some challenging situations. And so we've repositioned our contracting strategy in 2023.
Speaker 5: Christmas break, we're seeing some ability to attract higher quality talent, which has been really a strong indicator that we can complete by the end of this year.
Speaker 5: ability to attract higher quality talent, which has been really a strong indicator that we can complete by the end of this year. Thank you.
Speaker 4: Our next question comes from John McKay of Goldman Sachs. Please go ahead. Hey, good morning. Thanks for the time. Maybe staying on the funding side. You talked a little bit about the ability to maybe defer some catbacks. This is the first date that grant can wait about two weeks. We'll return to the Forbidden Week. But I'm sure everyone is stubborn and should not go there. We'll return to the Forbidden Week.
Speaker 4: or push-ups and projects or kind of reduce scope here or there. Maybe you can just share some more detail on what you're thinking about there. How much could be in 23 versus what could be more of a 24 plus impact? John , it's a it's dual here. Yes, we continue to look at our portfolio and look to ways to optimize it.
Speaker 3: I would say to you that we did move some projects from 23 into 24. We're not going to give you the specifics around that. But obviously as we optimize portfolio, the important thing to remember is that we're not going to jeopardize the reliability or the integrity of our system nor our...
Speaker 3: to meet the needs of our customers. But we continue to refine the portfolio, and I would just point you to our outlook for this year, which is that $11.5 to $12 billion of capital spend. OK, there. Thank you. Maybe a follow-up on Keystone. Can you spend a second just talking about what you're kind of assuming for 23 in terms of being able to get back to prior run rates?
Speaker 3: or not, and then the 650 million of potential costs, or I guess the liability you took, how much of that do you think can come back through insurance, and any of that assumed any kind of sort of thing? Thanks, John , as Francois. I'll start off, and then pass it on to Richard. All I want to do is, again, say thank you to our workers. We still have 800 people plus.
Speaker 3: in the field. They've done great work, they've done it safely, and I also want to thank the community in which we're working who has been terrific and receiving and welcoming our workers and has been very supportive of our efforts. So with that, I'll pass it over to Richard. Yeah, thanks, Francois. I just a couple of other things I'd mention on that respect too, is that I also...
Speaker 4: I'd say our near-term focus right now is safely operating the system and completing the cleanup and remediation efforts on site. As Francois mentioned, we've recovered 90% of the oil and we continue to make very good progress there.
Speaker 4: We did release last week, as part of our overall root cause investigation, the results of the metallurgical lab analysis. And what that did conclude is that the failure was a result of a weld flaw and bending stress that were both, you know, had to be present in the area in order for the failure to occur. Importantly though, it also did confirm that there were no issues with the pipe and fitting strength.
Speaker 4: the keystone system, you know, where similar circumstance could potentially occur. As part of our root cause assessment, we're also working through our remedial actions and, you know, what next steps that we're going to have to take in order to confirm we can both to ourselves, to our regulators and our customers that we can continue to operate the pipeline safety safely. So in the meantime, we are operational to all delivery points.
Speaker 4: But we are operating the pipeline under some additional operating mitigation measures, which includes a deep pressure deraille, which is also required from FIMZ in the corrective action order. Commercially, we're able to deliver all of our contracted volume requirements, but we're limited in our ability at this time to move uncommitted or spot volumes. And just to give you some perspective on that, you know, Keystone is 94% contracted.
Speaker 4: We're required to leave 6% of our space for uncommitted or spot capacity by the regulator and it's that that's 6% of the volume that at this time we're not able to move. So we're working through these remedial actions. It is going to take some time for the root cause investigation to play out and for us to determine not just...
Speaker 4: what caused the failure, but why those circumstances were in place at the time. And once we work through that, at that time we'll be getting the FIMZ on a path towards how we return the system back to baseline operations. And at this point in time, I don't have a time frame that I can communicate on that, but we'll continue to be transparent as we've been up to date and we'll continue to update our website.
Speaker 4: And we'll keep our customers and all stakeholders up to date as new developments occur. With regards to your question around the cost estimates, so to complete this work, we recorded a liability of $480 million, which is our current cost estimate of the total cost to repair the site.
Speaker 4: and to complete all the environmental remediation. We do have appropriate insurance coverage in place for these types of events, and we're working with our insurances on this. And it's probable that the majority of the estimated costs are going to be eligible for full recovery. Let's see if there are a pursuit of the color. Thank you.
Speaker 2: Our next question comes from Robert Kwan of RBC Capital Markets. Please go ahead.
Speaker 3: Thank you, good morning. I can come back to CGL and Bevin, so you talked about a lot about the winter construction activities. Are those the biggest critical path items, i.e., by the time you get to June and July , or differently to 2G reporting in August that you've got?
Speaker 5: pretty much a very good picture on timing and costs or other critical path items in the summer and into the fall. And what would those be? Robert, we've moved to a part of the project now or a point in the project with 84% and complete that we're not executing large spreads.
Speaker 5: hundreds of kilometers of pipeline. We're really in a series of crossings, tie-ins, hydrotesting, discrete scopes of work that we've been able to, a contract appropriately, be put mitigation plans where we've brought in additional tie-in type crews, other kind of specialty expertise to help us accomplish these.
Speaker 5: is relentless on this. There's not one or two critical path items that are going to stop us. We just have to remain focused on executing the plan that's in front of us today. If I can turn and finish with that that's it's here. So you've got the messaging and where you are up the five path. I'm just wondering.
Speaker 3: You talked about being able to get to five times by the end of 2023.
Speaker 3: Does that plan in terms of your internal numbers and the discussions you've had with the rating agencies, I know that gets you to that five times, you're messaging that and then your 2026 4.75 target, but does it adequately manage the metrics in the years in between leading up to 26 based on...
Speaker 4: Again, your numbers versus the rating agency targets in your discussion with them? Yeah, Robert, it's Droll here. Simply answer your question. Yes, it does. You know, we have to recall that, you know, we need to look at EBITDA growth. You know, 6% year-over-year, 22 relative to 21. You know, going forward here, 23, we expect 5 to 7 and then 6% going forward here. So we have to factor that into the...
Speaker 8: That is our run rate, is to get the 4.75, but in the end term is to get the five times, and we're going to stay there. Again, we're not going to go higher, as we've talked about before. 4.75 is the appropriate level here. So again, when you look at our model, it's certainly we're able to achieve that with the capital rotation.
Speaker 3: Robert's friends will just add a comment to that. In terms of our business development and growth strategies, we are going to continue to be very disciplined around adding capital spend in those years in the interim. Capital discipline is very important to us.
Speaker 3: And so really when you're looking at many of the types of projects that we pursue, they get sanctioned and then you have one or two years of regulatory approvals to go through. So really unlikely to see us sanctioning significant amounts of incremental capital in that period of time. And where we do, we will be looking to capital rotation.
Speaker 8: to maintain our balance sheet metrics on it. So the 23 program holds you at five and gets you to just four, seven, five by 2026. And anything 2024 and beyond is basically color-coded against additional cat-bags. Yeah, I would say though that the 4.75 our expectation is we accelerate that beyond.
Speaker 1: Thank you.
Speaker 5: Our next question comes from Praneet Satish of Wells Fargo. Please go ahead. Thanks. Good morning. On Coastal Gas Link Phase 2, I know the project is still under evaluation, but I'm wondering how you think about the economics for Phase 2 in the context of Phase 1 cost.
Speaker 8: range just curious for your thoughts on that.
Speaker 5: So, you know, Coastal GasLink is basically Canada's LNG corridor and we're working with our customer LNG Canada who's developing not only their first trains, but they've asked us to begin the evaluation of Phase 2. So, as you say, we're very excited.
Speaker 5: to be contemplating the expansion of our system. This would not be a linear development. It's the addition of six compressor station sites which we've demonstrated at Wild Lake that we've just brought to Mechanically Complete that we can deliver those on schedule and on time.
Speaker 5: The project economics, those are obviously confidential, but we're encouraged by the possibility of advancing to an FID stage that, as you say, would bring the total investment in that LNG court to return that or more commensurate with what our expectations would be. The other project in addition to Phase 2, that's important to note is...
Speaker 5: the support of the Hizla-led Cedar LNG project, which would be the largest single Indigenous-led investment in Canada's history. So we're working with them as a customer as well as an off-taker off of CGL. So very exciting opportunity. Getting this corridor on the ground is really exciting.
Speaker 5: about dividend growth and whether slowing dividend growth is a lever that you'd consider to accelerate or manage deleveraging.
Speaker 3: I think with respect to the comments I made earlier, Pernith, around our payout ratios being among the lowest in our peer group, when we look at our $34 billion capital program going forward. A short cover with drop-kick was added to get a $ $8.00 boost for most of the Mino, a $11-
Speaker 3: We look at the divester program that is well underway. We don't see a scenario where we will need to change our dividend policy. We expect to continue to grow the dividend in that 3-5% range. I'll remind everyone that that is a board decision, but in terms of what management would be recommending.
Speaker 8: We don't foresee any need to make any changes to our long-term dividend growth range, even after giving effect to the divestiture program.
Speaker 2: Thank you. Our next question comes from Harry Mater of Barclays. Please fill ahead.
Speaker 5: Good morning. As you're advancing the asset sale program, can you talk a bit about your financing strategy in the meantime? I saw you guys borrowed on a term loan of 4Q. So are you thinking of using the bank debt market as an interim measure to bridge into asset sales close?
Speaker 8: Maybe with some prepayable debt in the mix or are you more inclined to take advantage of the inverter rates curve right now and issues in term debt? Yeah, here it's it's drool here as you noted we did do a term loan for 1.5 billion here in December . Going forward we do have normal course refinancing that we would do here. So we look to the capital markets, capital markets both in Canada and the US.
Speaker 8: moving forward. To your point, when you look at the curve right now, obviously funding levels look pretty attractive further out. We need a 10-year and 30-year space, so we'll look to that, potentially the front end of the curve, but we'll still do the normal course financings in the debt capital markets here going forward. Keeping in mind, though, that we will have cash proceeds coming.
Speaker 5: very close to S&P's maximum. Can you just update us on how you see that hypercapacity evolving the next year or so and what that might mean for your ability to tap that market?
Speaker 8: Yeah, so to your question, it's, you know, 15% of our total capital structure. That's the S&P methodology, and that's what we hear too. So as the balance sheet grows, obviously there is going to be additional capacity that's created. So we'll still look to that market for, you know, additional funding going forward. I just remind everyone that we do get 50% equity credit when we do issue hybrid securities.
Speaker 9: Okay thanks Drill??DS,
Speaker 3: Our next question comes from Robert Cattelier of CIPC Capital Markets. Please go ahead. Thanks, maybe I'll start with the NGTL system. I'm curious what you're hearing from shippers about the implications of the blueberry rubber first nations agreement on their development plans and any additional expansion that you might need there. Thank you.
Speaker 6: Sure, thanks Robert. This is Greg Grant, I'm the President of the Canadian Gas Business. To start out with, I actually just want to congratulate the Blueberry River First Nation and the other treaty nations on the signing of the implementation agreement with the Province of British Columbia.
Speaker 6: Some of us were lucky enough to be up there for the signing and Prince George and just to see how meaningful.
Speaker 6: and emotional it was for the communities, not only today but for generations to come.
Speaker 6: It is fairly new, Robert, so while we understand it may take time for industry players to analyze the agreement.
Speaker 6: We do think the clarity and the certainty will allow the continuation of discipline and responsible growth in the region. And it's an important step towards mutually beneficial development. We've already seen the outcome of this.
Speaker 6: There's actually been substantial increase in licenses and permits that have been approved in January .
Speaker 6: So we view this as continuing to feed the growth we've already seen in NGTL over the last year of over a BCF of production.
Speaker 6: and will allow us in the future to continue to add disciplined capital growth.
Speaker 6: So we'll continue to work with the customers as we review more details that they become available. But really want to know that we really view this as a positive development, not only for our system, but the basin and the other BC First Nation communities. Okay. Thanks for that Greg. But also, François, I can't let you go without an answer. Thank you.
Speaker 6: And so what factors go into that process other than price and also how significant a valuation do you need to justify selling an interest in a core asset?
Speaker 6: What factors go into that process other than price and also how significant a valuation Do you need to justify? Selling an interest in a core asset.
Speaker 3: I'm not sure if I want to say thanks for the question or not, but Robert it's a great question and as we said before you know the the things the factors that will you know influence
Speaker 3: Our decisions are on divestitures. First and foremost, de-leveraging is our number one priority. You just want to be clear on that. The other side of the coin around leverage credit metrics, though, is the quality of your instability of your cash flows. So it's very important for us to maintain the high quality and stability of cash flow going forward.
Speaker 3: the best of whether it's discrete assets or interests in larger assets in a way that you can preserve the high quality composition of your portfolio. So that's how we're going to go about it. Some of the other things we mentioned are pro forma impacts to per share.
Speaker 3: cash flow and earnings growth. And of course, we want to continue to progress our mission reduction, mission intensity reduction between now and 2030.
Speaker 3: and of course we want to continue to progress our emission reduction, emission intensity reduction between now and 2030. Yep, okay, thank you.
Speaker 2: Thank you. Our next question comes from Patrick Kenney of National Bank Financial. Please go ahead.
Speaker 5: Thank you. Yeah, good morning. Joel, just to follow up on the hybrids question. Sorry if I missed it, but after the write down on CGL, if you could just...
Speaker 5: confirm how much room you still have today within the cap structure to issue additional hybrids? And then I guess, you know, whether or not upsizing the asset sale program beyond $5 billion might limit your capacity to issue additional hybrids, at least over the next year or so. Yeah, Pat. So, today we're around 14%
year. So you have that coming in and then obviously you can have some asset sales. So overall we see the capacity continuing to increase here over time. But again the way to think of it for every every billion dollars it's around 150 million of additional capacity that you get as the balance sheet grows. So again this will be a tool that we'll use going forward to fund ourselves.
The A-reading was very much tilted as a competitive advantage for the company.
at least up until when the goalposts were moved on you. Obviously, a lot has changed since that last downgrade, but I'm just curious how important it is to protect the triple B plus rating going forward, even if the goalposts are moved on you again for whatever reason.
Yeah, we can never factor how the ratings are going to move the goalposts around as you've noted, Pat. We had that happen a few years ago where the key metrics to adhere to the A- rating were moved to the point where it just didn't make any sense. We value our ratings and we have a finance plan in place here that we believe is going to be CPI above two tenths of this market 100% up until we've thought about numbers in this history. So they're going to be per capita)?
gets us to maintain our triple B plus ratings. Again, the key point of this is our leverage. As I've stated earlier, that we want to get to the five times in the next 12 months. And then ultimately down to that 4.75 times. You've heard Francois mention that we're not going to compromise our business risk because the left hand side of the balance sheet is important here with our ratings as well.
And so again with the portfolio management, we don't see any change to our business risk profile nor our value proposition. So again, it's very important for us and again the capital program that we have in place, a capital rotation program that is we view that we can get to that five times leverage market, leverage target. So that's our objective right now and again the triple B plus rating is very, very important to us.
Okay, that's great. Thanks, Joel. Ladies and gentlemen, this concludes the question and answer session. If there are any further questions, please contact Investor Relations at TC Energy. I will now turn the call over to Gavin Wiley. Please go ahead.
Yeah, thank you operator and thanks everyone for your participation this morning. We always appreciate your time and interest in TC energy and we look forward to our next update in a few months. Thanks again. This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.