TC Energy Corporation Q1 2023 Earnings Call
Speaker 1: Not make.
Speaker 2: Thank you for standing by. This is the conference operator. Welcome to the TC Energy First Quarter 2023 Financial Results Conference call.
Speaker 2: As a reminder, all participants are in listen only mode and the conference is being recorded.
Speaker 2: After the presentation, there will be an opportunity to ask questions.
Speaker 2: To join the question, QE may press star, then one on your telephone keypad. Should you need assistance during the conference call, you may signal an operator by pressing star, then zero.
Speaker 2: I will now turn the conference over to Gavin Wiley, Vice President and Vester Relations.
Speaker 3: Please go ahead. Thanks very much and good morning everyone. I'd like to welcome you to TC Energies, 2023 First Quarter Conference call. Joining me are 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 some comments on our financial and operational results.
Speaker 3: A reminder that remarks today will include forward-looking statements that are subject to important risks and uncertainties.
Speaker 3: For more information, please see the reports filed by TC Energy with the Canadian Securities Regulators and with the U.S. Securities Exchange Commission. Finally, during the presentation, we'll refer to certain non-GAAP measures that may not be comparable to similar measures presented by other entities. These measures are used to provide additional information on TC Energy's
Speaker 3: A reconciliation of various gap and non- GAAP measures is contained in the appendix of the presentation. With that, I'll turn the call over to friends well.
Speaker 3: Good morning everyone. I'm pleased to report that our strong financial performance in 2022 has continued into the first quarter of 2023.
Speaker 4: High utilization and availability across our system have enabled us to generate exceptional results in the first quarter.
Speaker 4: This is a testament to our people.
Speaker 4: the continued strong demand for our critical energy assets, and the resiliency of our low-risk business.
Speaker 4: For the remainder of 2023, our priorities are clear.
Speaker 4: just relieving high-quality secured capital program.
Speaker 4: Second, accelerating our de-leveraging targets by advancing our $5 plus billion asset investor program, which we expect to complete throughout the year. Third, safely and reliably, operating our assets that provide essential energy services across North America.
Speaker 4: We firmly believe that achieving these priorities will unlock value and maximize shareholder returns.
Speaker 4: And based on our strong start to 2023, we reaffirm our 2023 comparable EBITDA outlook of 5-7% higher than in 2022. Underpinned by our focus on strong operational performance, first quarter results. Governor Cherylill has urged 1988, Friday, 100 ?? Betty Strowings for 11-12% of Presyorum21 Health, Ma? 9-1-19 final edition.
Speaker 4: had comparable EBITDA up 16% from the same period last year, while comparable earnings per share rose by 8% year over year.
Speaker 4: During the quarter, we placed the total of $1.4 billion of projects in service, and we remain on track to place $6 billion of assets in service during 2023.
Speaker 4: In Canada Gas we brought $1.1 billion of projects into service further adding incremental market access for our customers in the basin.
Speaker 4: In March, we also placed the PortNechesLink pipeline into service.
Speaker 4: Under budget.
Speaker 4: extending our Keystone system to include last mile connectivity to the largest refinery in North America.
Speaker 4: in our U.S. natural gas business.
Speaker 4: 2022 was a record year in terms of compressor reliability across our fleet. And so far in 2023, we are on track to meet or even exceed that performance.
Speaker 4: This year, we've set a multiple of all-time records for deliveries to LNG export facilities, reinforcing the criticality of our assets.
Speaker 4: And in Power & Energy Solutions, Bruce Power delivered exceptional availability.
Speaker 4: of 95% and we expect 2023 to average in the low 90s.
Speaker 4: Unit 6 MCR is proceeding on schedule and on budget and is now in the final stages of the installation phase.
Speaker 4: Execution of our major projects is our central priority for 2023.
Speaker 4: I'm pleased to share that Coastal Gas Link is continuing along our revised cost and schedule and progressed through the winter on plan.
Speaker 4: We accomplished several major milestones with the overall project, now 87% complete.
Speaker 4: and approximately 570 of the 670 km of pipeline has been backfilled and restoration activities are underway in many areas.
Speaker 4: Commissioning work on the Wildlife Compressor Station has begun and natural gas has been introduced as part of the transition.
Speaker 4: of the Facility to Operations.
Speaker 4: More than 85% of all classified water crossings are now complete and we have safely completed the excavation of Cable Crane Hill ahead of schedule.
Speaker 4: and are now installing the final pipe through this critical path section.
Speaker 4: We continue to target mechanical completion by the end of the year.
Speaker 4: Our second offshore project in Mexico, the Southeast Gateway Pipeline, is also proceeding according to cost and schedule.
Speaker 4: We've achieved our first milestones.
Speaker 4: With the acquisition of land for compressor stations and offshore landfalls, we've obtained key federal environmental authorizations and local permits for the project.
Speaker 4: Critical long lead items, including the offshore vessel, have been secured and we've begun receiving materials. We anticipate commencing onshore construction for our compressor stations this summer.
Speaker 4: Critical long lead items, including the offshore vessel, have been secured and we've begun receiving materials. We anticipate commencing onshore construction for our compressor stations this summer. In fact, civil work has already begun.
Speaker 4: And our offshore pipe installation will commence toward the end of 2023.
Speaker 4: As a reminder, approximately 70% of the total project costs are under fixed price contracts, providing greater certainty around cost and schedule, and we continue to target completion by mid 2025.
Speaker 4: at least 70% of the total project costs are under fixed price contracts, providing greater certainty around cost and schedule, and we continue to target completion by mid 2025.
Speaker 4: Following the milepost 14 incident on the Keystone system in December ,
Speaker 4: We've been diligently working to restore the area to its original state.
Speaker 4: We're pleased to report that we've recovered over 98% of the released volume.
Speaker 4: A big thank you for the continued support from the Washington County community.
Speaker 4: and we are dedicated to ensuring the affected area is fully restored. We've received the independent third-party root cause analysis and with these findings...
Speaker 4: We are committed.
Speaker 4: to implementing a comprehensive plan to enhance our pipeline integrity program and overall safety performance.
Speaker 4: Now, looking to the future.
Speaker 4: Our North American footprint means we have access to a diverse set of high-quality growth opportunities.
Speaker 4: And this is a high-grade problem to have. But we must consider both financial and human capacity when evaluating incremental projects. We recognize we are in a period of increased development spend. However, post 2024, we are committing to limiting annual sanctioned capital expenditures to $7 billion or less.
Speaker 4: In fact, we will strive to manage annual capital spending to approximately $6 billion, providing the flexibility to further reduce leverage or buy back common shares.
Speaker 4: When sanctioning new projects, a key consideration will be the timing of the capital spend and it must fit within our annual capital expenditure parameters and andalebraging targets Serendileparystem in slow down
Speaker 4: We've also enhanced our governance practices and placed higher standards around sanctioning large or complex projects that includes the requirement for a class 3 estimate as well as an independent third party assessment as was the case with the Southeast Gateway.
Speaker 4: and with an emphasis on building firm capacity in areas such as nuclear, pump storage, hydrogen, and carbon transportation and sequestration. Renewable energy will play a complementary role in our decarbonizing of our own assets, and we can also extend that service and product to our customers. However, the pace at which we allocate capital to these areas will ultimately be driven by their affordability, their reliability.
Speaker 4: and their sustainability. Thanks and I'll now turn the time over to Joel.
Speaker 3: Thanks Francois. Building on the record results we achieved in 2022, we set a new quarterly record during first quarter 2023 that reflects high utilization, availability and continued operational performance across our asset base.
Speaker 3: First quarter, 2023, Compoblet EBITDA was up 16% year-over-year.
Speaker 3: with comparable earnings growth of 12% and 8% year-over-year increase in comparable earnings per share.
Speaker 3: We continue to demonstrate the certainty and stability of our cash flow growth that reflects our assets being over 95% rate-regulated or underpinned by long-term contracts.
Speaker 3: Our strong performance during the quarter was driven by a combination of the strength in our North American natural gas pipelines, along with higher contributions from our power and energy solutions business.
Speaker 3: Our rate-regulated Canadian natural gas pipelines saw a year-over-year increase in net income of 11%, primarily driven by growth in the NGTL system average investment base.
Speaker 3: Average NDTEL system deliveries rose year over year, reaching 14.5 billion cubic feet per day.
Speaker 3: 14% growth in our U.S. natural gas pipelines, Compobli-Ivita, was largely due to higher earnings from ANR following the FERC approved rate case settlement as well as contributions from growth projects placed in service.
Speaker 3: Throughput for the quarter averaged 28.5 billion cubic feet per day, with several of our assets performing at near record levels when demand was at the highest.
Speaker 3: In Mexico, Compal Waiiba had an increased 16% year-over-year reflecting the north section of the Ville de Rays pipeline and the east section of the Tula pipeline that were placed in the commercial service last year.
Speaker 3: Here today, the operational reliability of the Keystone system has been more than 95% supporting the safe and reliable delivery of all contracted volumes for our customers.
Speaker 3: Power and energy solutions generated outstanding results with a 79% increase in comparable even a year-over-year.
Speaker 3: In February , our Alberta Co-generation Power Fleet reached a 100% peak price availability for the first time in company history, while pricing remained strong, averaging $142 for megawatt hour.
Speaker 3: Bruce Power achieved 95% availability during the quarter with fewer planned out-of-days and higher contract pricing relative to the first quarter 2022.
Speaker 3: We are reaffirming our expected 2023 Combo-Leavitt growth of 5% to 7% compared to 2022. We also expect comparable earnings per common share to be modestly higher.
Speaker 3: We are confident in this outlook despite the environment of rising interest rates and inflation.
Speaker 3: And as a reminder, any fluctuations in these variables in other factors could impact our 2023 outlook and we will look to revise throughout the year if necessary.
Speaker 3: Global markets have been experiencing heightened volatility and I want to take a moment to discuss the confidence I have in our outlook and ability to meet our financing requirements.
Speaker 3: The chart on the left highlights the rapid increase in rates during 2022, which were similar across the curve, driving the year-over-year increase in interest expense. However, we are beginning to see 10-year government bond yields moderate from their recent highs.
Speaker 3: We continue to demonstrate cost-competitive access to capital markets as evidence during Q1 when we executed over $6.5 billion of new issuance across a variety of maturities and geographies.
Speaker 3: The fixed rate debt tranches of these issuances have a weighted average cost of 5.6%. We have a manageable debt maturity profile with a weighted average maturity of approximately 18 years, an average pre-tax coupon of approximately 5%.
Speaker 3: Roughly 15% of our debt portfolio is exposed to floating interest rates, we have programs in place to actively manage our exposures.
Speaker 3: Now turning to our funding program, a key priority for us is capital discipline.
Speaker 3: Without sacrificing operational safety or reliability, beyond 2024, we will manage our annual sanctioned capital spending to $7 billion or less, inclusive of maintenance capital.
Speaker 3: As Francois mentioned, we will strive to manage annual capital spending to approximate $6 billion.
Speaker 5: This enhances our financial strength while providing optionally to further the de-leverage or buyback shares.
Speaker 5: I'll note that the sources and uses outlined on this chart do not include the impact of potential acid divesters that are expected to be realized through 2023. You can expect our incremental funding requirements to be reduced as our acid divester program progresses allowing us to further accelerate our deleveraging target.
Speaker 5: With respect to the dividends declared on February 13, 2023, the participation rate in our dividend reinvested plan was 38 percent resulting in a proximate $360 million reinvested in common equity under the program. The discounted dividend reinvested plan is expected to be in place through dividends declared for the quarter-ending June 30, 2023.
Speaker 5: $0.72 per share on an annual basis.
Speaker 5: Second, we have delivered strong results. This is a testament to the strength of our utility light business model, our unwavering focus on safety and operational excellence, and North America's increasing demand for our essential services.
Speaker 5: We've created significant shareholder value despite market volatility and macroeconomic challenges, and I'm confident that we'll continue to do so.
Speaker 4: Thank you, and I'll now pass the call back to Francois. Thanks Joel. In summary, our priorities for the year are clear. Continue to execute on our major projects such as CGL and Southeast Gateway.
Speaker 4: Accelerate or deleveraging targets by managing our capital spending and advancing our asset investor program.
Speaker 4: And third, achieving safe, reliable and sustainable operations and our focus on operational excellence to drive higher returns.
Speaker 4: To reflect our commitment to these priorities and to better align with our shareholders, we have introduced new performance measures that explicitly tie executive compensation to cashflow per share.
Speaker 4: Deleveraging and greenhouse gas emission reduction targets. I'm confident that the future opportunity set combined with our capabilities
Speaker 4: and reflecting capital discipline.
Speaker 4: will unlock additional value and deliver superior shareholder returns well into the future.
Speaker 4: Thanks and I'll now turn the call back over to the operator for questions.
Speaker 2: Thank you. We will now begin the question answer session. To join the question queue, you may press star then one on your telephone keypad.
Speaker 2: You will hear a tone acknowledging your request. Please limit your questions to two, and if you should have additional questions, please re-enter the queue.
Speaker 2: If you're using a speaker phone, please pick up your handset before pressing any keys.
Speaker 2: To withdraw your question, please press star, then 2.
Speaker 2: We will pause for a moment as colors join the queue.
Speaker 2: The first question comes from Rob Hope with Scotia Bank.
Speaker 2: The first question comes from Rob Hope with Scotiabank. Please go ahead.
Speaker 6: Good morning, everyone. First question is just on capital allocation. In the prepared remarks, it was noted that sanctioning new capital must fit with the financial capacity of the organization. While it's small, how does the wind acquisition fit with this? Why not pursue a more capitalized strategy for your renewables here, just given you are selling some assets?
Speaker 4: Good morning Rob. This is Corey Hessen.
Speaker 4: These opportunities are the product of a 2022 process that's closing in 2023 and was already in our capital plan.
Speaker 7: These are high quality operating assets with best in class equipment.
Speaker 7: generating immediate EBITDA for the enterprise.
Speaker 7: We have a long-term service agreement in excess of 15 years with the original equipment manufacturers for both locations. That include availability guarantees for both facilities.
Speaker 7: We are in advanced discussions with credit worthy counterparts for the power generation and the environmental attributes from these facilities.
Speaker 7: In summary, the Texas wind farms are within our capital plan any modest capital investment to help TC Energy execute on our decarbonization goals.
Speaker 6: All right, appreciate that. And then just moving over to Coastal Gas Link, you know, with the winter behind us, it looks like you had some successes on keeping the project on time non-budges here. However, as we look to the summer constructions season, as well as the end of 2023 and service days, what do you see as the key risk factors on keeping the...
Speaker 6: cost and schedule and how are you progressing against those?
Speaker 8: Rob, it's a webinar. I'll take that question. So you're right. We made very good progress this past season. We're laser focused on safely getting this project to the finish line. And as we noted in the remarks that we're reaffirm.
Speaker 8: but our targets on both cost and schedule here for the year. Really what we need to be looking for.
Speaker 8: during the balance is no different than what we've been working on today is that there are tremendous number of work fronts as you can appreciate on a project of this scale. We're migrating primarily from kind of mainline construction to really a focus on
Speaker 8: And so, you know, while we're progressing extremely well on the entirety of the probe...
Speaker 8: project. We've had to move to really a front foot on being proactive on having backup plans to backup plans. And so when we provide updates, we'll be focusing mostly on
Speaker 8: how we've moved forward through these critical last areas of the project and where necessarily implementing some of our backup. So just to give you some proof points on that, we pre-located some equipment to allow us to work through some of the spring breakup periods of time.
Speaker 8: significant buffer for us because we know that any of these critical work scopes could have us really going to Plan B and Plan C and so that's really where the focus is. But you know we had the successful introduction of gas into Wild Lake that was executed to plan. We had over a million man-hours safely completed there.
We're very encouraged, but we're extremely focused on managing these final critical scopes that are in the balance of the year.
Thank you. The next question comes from Teresa Chen with Barclays.
Please go ahead. Good morning. Thank you for taking my questions. First, I'd love to get some more details on where you are on the AFSAW process at this point. Now that has been several months in the making. Do you have additional clarity on the types of AFSAW that you're looking to discuss and how should we think about evaluation?
point in our discussions. We have multiple processes underway at the moment and so we'll refrain from making any specific comments on any particular asset or on where valuations are trending. I'll reiterate however that our intention is to maintain the quality of our portfolio. So we will be monetizing assets.
or interest in assets in various parts of the portfolio to maintain our cash flow composition that we view as very high quality.
Thank you. And if I can ask Stan on the progress on Southeast Gateway at this point, what percentage has been done? How much capital of the four and a half billion has been spent? And what should the next milestones that we should be looking for be?
Hey, Teresa, this is Stan. As Francois reiterated up front, our Southeast Gateway Pipeline continues to track to a mid-summer 2025 in service state, $4.5 billion in CapEx, both of which is unchanged from when we FID the project this summer. For more information, visit www.fid.com
I would note that we're really pleased with our partnership with CFE. They have and will continue to play a very key role for us in helping to secure both land and permits.
In terms of activities that have been ongoing, steel plate is being delivered, pipe is being rolled, and preparations for its concrete coating are underway so that the subsea pipeline lake and commence at the end of this year. Specifically to your questions, there are three key milestones that we are focused on this summer. Deligently focused on, I should add.
First is commencing construction on our two compressor stations. Second is securing the right-of-way for our onshore pipeline, which you recall is relatively small at about 21 kilometers. And lastly is commencing preparations for the onshore construction work associated with the microtunnel, so that the microtunneling itself can be used to
can take place in early 2024. So, overall, we continue to incorporate the lessons learned from prior projects such as CERT and TEJAS, but we're really pleased with our project's progression as of now, and we'll continue to update you as the project develops over the coming months.
Thank you. The next question comes from Linda Ezregales with TD Securities. Please go ahead.
Thank you. One ring if you could maybe give us some sense of what your expectation for 2024 capital expenditures specifically might look like and what sort of magnitude of that up.
additional wind or solar power acquisitions might be embedded in your budget for this year, next year, or potentially even added to what you've baked in.
wind or solar power acquisitions might be embedded in your budget for this year next year or potentially even added to what you've baked in.
Thanks Linda, it's Francois, I'll take that one. As we've talked about before,
So I'll take that one. As we've talked about before.
Once a project is in construction and we break ground, we've probably been at it for a couple of years from a perspective of permitting and project planning and having ordered long lead items. And one of the reasons why we're going to strive for building some optionality below our $7 billion capital run rate going forward is that we do want to make sure we maintain
some capacity for further debt reduction or share buybacks going forward. It's going to take us the balance of this year and 2024 to work our way down to that $7 billion or really $6 billion run rate. And so you can expect us to be well below the 11 and a half.
to 12 billion of capital that we have in the plan for 2023, trending towards that $7 billion run rate, but not quite there yet because of the dynamic that we've identified.
of capital that we have in the plan for 2023, trending towards that $7 billion run rate, but not quite there yet because of the dynamic that we've identified. With respect to
plans for additional renewables or other assets in our program going forward. Remember, these are very small capital dollars, tens of millions to low hundreds of millions over time. We will be utilizing
project financing and tax equity wherever possible to get our equity checks down to very modest levels and as we have worked through our capital program and tested our ability to maintain
a stable balance sheet, grow our cash flow per share, grow our dividend, have strong payout ratios. We're going to be able to do that.
To get to a level of comfort where we can say that $6 to $7 billion is our run rate, we have factored in to our capital program some additional renewables as well as some additional investment in our other businesses.
Thank you. This is my follow-up, just trying to round out my understanding of Coastal Gas. Can you advise if you've used any of the contingency in your budget this year to add to your schedule buffer or for any other reason? And do you see a high likelihood of at this point of dipping into your contingency to pay for some of the buffer?
Certainly as we preposition certain work scopes, we spend some of those dollars a little ahead of plan or otherwise, but we actually incorporated that in our thinking at the time of the CSRA. And so, you know, we look at this probabilistically and so under certain scenarios we're certainly going to —
to pre-spend on different activities, those are well within the plan. We maintained access to the headwall and other critical path scope, removing a ton of snow, we put that in the plan.
We're very thoughtful when we came forward with our revised budget last quarter to make sure that we had a variety of scenarios, not just a single scenario in mind in terms of the finishing or the executing of the project.
The next question comes from Jeremy with JP Morgan.
The next question comes from Jeremy with JP Morgan.
Hi, good morning. Morning. Um, just want to come back. The CGL construction from a little bit of a different angle. I think there might've been kind of competition for labor between CGL and and and was just wondering if you comment there and I guess, you know, high C.
TMX progressing at this point if it's if it's close to kind of winding down does that lead to kind of less stress less pull on the labor pool and how would that impact CTO?
Jeremy, I'm not going to speak to TMX. I don't know exactly what their plans are. What we're seeing on our project is we've had great retention of the contractor labour. We've seen increased of quality and actual productivity this year. And like I mentioned earlier, we're migrating to a very different type of scope of work.
but post the Christmas breakup where there was the same type of competition from TMX, we actually came back stronger. So we had nearly 6,500 folks on the right-of-way through the first quarter of this year at a time when TMX ramped up their labour force more than...
significantly more than what they were last year. So we're maintaining a pretty strong position with our labour force right now, which we're thankful for. And we're working really closely with our contractors to be just laser focused on retaining the right people to get this thing done by the end of the year.
Got it. That's helpful there. And just wanted to pivot a little bit to Columbia. There's news out there with regards to I think a lightning strike that might have impacted the Corinth compressor station and led to a forced major and realized this is all very kind of real time here, but didn't know if you could help us with any color and how to
very minimal impact to facilities. We've managed through that and plan to get the station back online later this afternoon.
Okay, so this is just like a 1 day impact type of thing.
Okay, so this is just like a one-day impact type of thing. Yes.
Thank you for that. And the next question comes from Robert Kwan with RBC Capital Markets.
Please go ahead. Thank you. If I can come back to the commitment to keep the CapEx below $7 billion, just some questions here. So first, does that include acquisitions? Second, the current period elevated CapEx is really part of it's driven by cost overruns. So just wondering...
how you'll think about managing your cost risk differently going forward and then they're just specifically, what does this mean for?
for Meafird or are you excluding project bubble financing from that seven billion dollar number?
Hey Robert, it's Francois. I'll take that one.
With respect to managing cost overruns, we have, you know, in prudent project management, we have a reasonable contingency for each of the individual projects that we have in our capital program. And so, striving to work towards a $6 billion run rate program going forward, and that's why basically why we couldn't hold the place that we were at and this part panel will do some oversees and here's what you need to know in order to get these all integrated into the capital program.
partners. That would be in addition or outside of that number.
project. With respect to the specific peculiarities of any individual project in terms of project financing, Um, that may or may not be considered depending on the project. A project like Ontario pump is, um, over Thio that you're
This is not only a financial equation, it's also a human capacity equation. When we think about having a very large capital program, our ability to manage a smaller program.
reduces execution risk and allows us to continue to grow our dividend at a stated rate grow or cash flows at or above that rate and keep a stable balance sheet and maintain stable and very conservative payout ratios. So you won't see...
The capital program far outstrip our sanctioned capital, but for reasons of human capacity. And as we move forward with different projects.
will be contracting for them differently, mitigating risk using full-wrap EPCs where appropriate, and looking for commercial mitigations to manage those outcomes as well. On all of the above basis, you should think about that 7 billion striving for 6 as our sanction capital.
going forward. Just on acquisitions included or excluded? Thank you for reminding me of that. We don't distinguish. There's no M&A in our plan.
We don't think that M&A is required for us, given our opportunity set, to grow our distributed cash flow per share at a rate above our dividend growth and maintain stable payout ratios and a stable balance sheet. It's just really not on our radar right now and if it were, Robert, it would be included in that cap.
That's great. If I can finish just on capital allocation and just back framing against the WYND acquisitions. You noted that while they're in the 2023 capital program, you previously talked about just generally the ability to defer capital and this seems like something that could have been eliminated. So while they're operating, I assume you acquired it for higher than five times EBITDA and less than 15%.
FFO yields, i.e. acquiring should be delivered to the credit metrics. So was there something binding you to complete these deals or can you just talk about the strategic nature of the two assets and the synergies they provide to the existing asset base?
Hi Robert, it's Corey. I would say that yes, this was in our plan and what I would emphasize is that we have decarbonization goals for our enterprise. These are critical in nature for us to meet our decarbonization goals which are long-term commitments to our shareholders and constituents across our jurisdictions.
Okay, thanks very much. The next question comes from Robert Catelier with CIBC Capital Markets.
Okay, thank you very much. The next question comes from Robert Catelli with CIBC Capital Markets. Please go ahead.
Good morning. I know you're trying to avoid discussing any particular asset, but I wonder if you can discuss as an asset class.
the merchant power. Alberta power prices have been quite strong over the last year or so. So how does this influence your view on this asset class as a candidate for portfolio management? In other words, does the market support a stronger valuation or would you rather retain them for their currently strong cash flow?
Robert's Francois, what I would tell you is
The vestitures, the purpose of our divester program is to de-leverage and so we call that raising internal equity. An internal equity is driven by the valuation in excess of five times debt to EBITDA.
And so as we choose which assets to monetize, we consider what the EBITDA multiple is above that five times amount because we have to have to maximize that spread over five times EBITDA to maximize our deleveraging. So to the extent our Alberta assets could achieve multiples well in excess of five times that EBITDA, we currently take
development projects to address additional LNG opportunities.
Hey Robert, this is Stan and as you heard me say before our best in class pipeline footprint has and is going to continue to provide us with more than ample growth opportunities at attractive build multiples. Our challenge today as you heard is less with originating new projects and it's making sure that we have a way to fund them.
So given that, our origination efforts are highly selective and focused on strategic opportunities where we can leverage our existing footprint, specifically in regions where projects can be permitted and constructed at attractive build multiples. So these opportunities today exist with respect to additional LNG exports, particularly in Louisiana as you noted, and increasing the connectivity that we have to our LDC customers which are backed by LNG.
and ensuring that we place our projects in service on time and on budget.
And Robert, it's Francois, I'll just add to Stan's comment. As we look to sanction capital going forward, the timing of the spend will be a critical factor in our assessment.
We're laser-like focused on staying below that seven and actually six billion dollar run rate of capital spend. And so as you look to us sanctioning projects in the future and given the size of our capital program to date really...
As we sanction projects going forward, the significant capital spend will be in later years. That's fine. It typically takes a couple of years to permit a project and get the long lead items in place. So projects we're looking at developing right now and competing for...
have spent in that 25, 26, 27 timeframe where we do have additional capacity to sanction projects and stay within that $6 billion annual.
in that 25, 26, 27 timeframe where we do have additional capacity to sanction projects and stay within that $6 billion annual limit.
Yeah, that's a very helpful caller. Thanks everyone.
Yeah, that's a very helpful caller. Thanks, everyone. Yep.
The next question comes from Ben Pham with BMO. Please go ahead. Hi, thanks. Just wanted to go back to the renewables side of things and your strategy there and I think for some time...
What was holding you back a bit on expansion is more of the locking multiples.
on renewable power assets and you've had the aggregation model as well that you've introduced last year. Can you talk about now the trends you're seeing? Is it better to buy versus build? How does it compare to aggregating power? Maybe an update on strategy there.
Ben, it's Francois, I'll take this one. As we talked about before, we're focused on sanctioning capital over the long run on the basis of affordability, reliability and sustainability. Renewables will be a complementary asset class.
in our portfolio to help achieve our own decarbonization goals while at the same time
helping our customers decarbonize their own energy consumption.
Where possible, we will adopt a capital light approach. We talked about the aggregation activities last year, which are continuing to proceed. In some instances where we see value and it fits within our capital plan, we underscored that it fits within the capital plan and the $6 billion per year limit.
will consider ownership in projects.
But as Stan mentioned in the context of our US gas business, across our whole portfolio, one of the things we're going to be looking at...
is joint ventures and partnerships with financial firms and other strategics to make sure we can advance our decarbonization goals, our market share aspirations in the US LNG market.
but still stay within our annual sanctioned capital limitations going forward.
still stay within our annual sanctioned capital limitations going forward.
annual sanctioned capital limitations going forward.
Maybe next on flexibility for share buybacks, maybe you can expand on that a little bit. How do you feed into your calculus? Where do you need to be with leverage to think about that?
Yeah, look, over the next couple of years, that's not an option. Our priority for 2023 and 2024 is to deleverage. Our goal is to get at or below five times debt debata as quickly as we can without compromising shareholder value and then remain there.
What I wanted to
to convey in my comments is it's very difficult to stop a project once it's been committed to.
just because your stock price is at a level that you think is attractive in terms of share buyback, by the time you break ground on a project.
you can't just tell your customer that they're not going to receive the transportation service they've been planning on and waiting on for many years. So by building
flexibility and the flexibility would come from the gap between 7 and 6 into our program on an annual basis, we will have the option in each and every year with that incremental capital to live within our means to either pay back debt or to buy back shares.
But to be clear, we don't see that as an option until we get at or below our five times debt to EBITDA and we're confident that we're going to remain below.
Okay, got it. Thank you. You're welcome. The next question comes from Andrew Kuski with Credit Suisse.
Please go ahead. Thanks good morning. The question is really for Francois and you know the emphasis on the limiting the capex post 2024 to the 7 billion and then getting it down to the 6. Does that effectively allow you to high grade your capital allocation process to higher returning projects?
I would say most definitely, Andrew. It's not just about unlevered after-tax IRRs. We do want to migrate the portfolio. We think about having a high quality and diverse portfolio with low volatility. That's part of our value proposition. But there's no question.
As I've said in the past, we see way more opportunity to deploy capital than we have financial and human capital to execute. And what that's going to allow us to do actually is to high-grade projects. And in fact, when you look at what we sanctioned in 2022, the unlevered after-tax IRR is in the 10% range. And that's above the weighted average IRR of what we sanctioned in 2022.
diversity and migrating the portfolio to an appropriate supply mix.
I appreciate that and then maybe not to be greedy, but in the trend of high-grading returns, your earlier comments on bringing on partners, whether they be financial, strategic or otherwise, does that allow you to engage in some kind of asset management model, get a promote on a project? How do you conceptualize that and think about it?
First and foremost, Andrea, that's a great question. We're going to focus on our human capacity. We have an ability to manage a capital program of a certain size and we are going to make sure that we always have the capacity and the capability to adequately manage the capital program we have underway.
An asset management model would suggest developing and building projects for others and we're going to be very mindful of maintaining a size of capital program that's within the capacity of our team.
Thank you very much for that. You're welcome. And the next question comes from Patrick Kenny with National Bank Financial.
Please go ahead. Thank you. Good morning. Just on Keystone here as you look to implement your Enhanced Integrity Program going forward, can you provide a little bit more detail with respect to the cadence of these additional inline
excavation work that needs to be completed across the system? I guess what the total cost of this program might do to your prior maintenance CAPEX guidance as well as you know the process for recovering these costs through your total structure or other means? Yeah sure this is Richard Pryor I'll take that and so you know as we
in our release, there's additional remediation work that we need to do. So we need to work through our remedial work plans with respect to mile plus 14 as well as the FIMS and corrective action order. You know that is going to include additional excavations as you mentioned and inline inspection runs. So we've already started that work and to date we've actually run 300 miles of
of tool runs on the pipeline adjacent to the incident site and we've not found evidence of similar features. In addition to this, we're also going to be completing engineering assessments. So this time, we did just receive the root cause failure analysis last week, as did PHMSA, and so there is going to be some more work to do to continue to study that and develop the details of this program. I don't have a timeline I can provide to.
to work these remedial work plans and result the corrective action order but I can't say that we are fully committed to expediting this work. I also don't have a cost estimate for this integrity scope I can share at this time however you know this work it would form part of our operating maintenance and integrity scope for the system and that would be recoverable through our variable tools.
Okay great thanks for that. And then just in terms of I guess an update on the egress picture out of Western Canada.
In light of where natural gas prices are at currently, can you comment on where you're seeing customer demand for incremental market access? California, Gulf Coast, East Coast.
I guess what this could mean for near to medium term de-bottlenecking activity across GTN, mainline, ANR and so on.
the Canadian gas business. Thank you. Sure. Um thanks a lot, Patrick. It's Greg Grant from the Canadian gas business
First, it's been great to see both from an operational perspective and from our capital programs, we continue to get assets in the ground and we're actually, we're a few weeks ahead of time on coming out of our 21 program and some of our NCE build this spring.
So last year you would have known we put about 1.3 BCF of intrabassin and egress this quarter added over 700 MCF and soon to be another 500 here. So that's been great to see the team and the performance there. That hasn't sopped up the demand I would say we still have significant demand coming in.
So while we've added that capacity, we are still at high utilization levels.
the next couple of weeks, months, we did announce some open seasons will be coming. So the team are looking at ways that we can continually optimize the system and create additional capacity where we can. That includes both existing and some new opportunities, which which we'll talk about in the following quarter.
On the US side, just think of us as the big catcher's mitt. Greg throws the ball and we try to catch it. We have an expansion project, as you're aware, on the GTN system right now, our GTN Express, which is currently pending before FERC, and we're anxiously awaiting our certificate so we can get that capacity constructed and in service either later this year or early 2024.
We also have the ability to attract volumes in on our Great Lakes system and again working closely with Greg's team as they submit open seasons on their side of the border to get additional capacity down to the US. Another thing I would point out of late is there seems to be some interest from
The LNG market in Louisiana to have additional exposure to it to Canadian volumes as well So we're we're pursuing opportunities to expand our in our systems as appropriate to get more Canadian gas down to the LNG terminals Okay, great, thanks for that update guys, I'll leave it there And the next question comes from Brian Reynolds with UBS
market in Louisiana to have additional exposure to Canadian volumes as well. So we're pursuing opportunities to expand our A&R systems as appropriate to get more Canadian gas down to the LNG terminals. Okay great thanks for that update guys I'll leave it there. And the next question comes from Brian Reynolds with UBS. Please go ahead.
Hi, good morning. Thanks for sneaking me in. Maybe as a follow-up on some of the prior labor questions, you mentioned that you're at 6,500 on the job now. So curious just what's the assumption for peak labor in project for the projects for coastal gas link this summer to reach completion goals for mechanical completion as labor starts to roll off on TMX this summer. Thanks. Yeah, thanks, Brian . We're effectively at peak and we'll be winding down now. So coming back from spring.
Fréchette will not be bringing back the same level of crews, but a significant number of folks will be coming back. As I mentioned, we're at some discrete scopes now. We're effectively finishing off any of the traditional kind of mainlining activities where we have significant number of crews. So I would say come to the fall, we'll be in a much more significant ramp down of
folks out there in the field. But you know our ability to continue to successfully manage and mitigate all our risks during the summer and the fall construction will be the key determinant in our ability to meet our costs and schedule goals. So we're more focused on managing the risks and inclusive of that is the labor front but we feel that we're in a good position there.
So, I think we've got time for just one last question, if you don't mind. And, yeah, and then, great, thanks. And just touching on the credit rating, you know, TransCanada has been put on negative outlook by S&P. So my first part of my question is, you know, is TransCanada committed to defending that credit rating at any cost, perhaps in the context of M&A sales? And then second, you know, how does TransCanada handle asset sales versus perhaps, you know, impacting its earnings?
on the CGL cost overruns by Fitch. We put a lot of value on the rating. We believe with our plan here to sell $5 plus billion of assets that we will be able to get our leverage down to our target as Francois mentioned about five times in the near term and ultimately down to 4.75 times.
That's our objective. With the plan that we have right now with $5 billion of asset sales with our growing EBITDA, you just saw us today mentioning we had a 60% increase in our EBITDA. That the combination of those two that we believe that we can get down to the five times and ultimately get the negative outlook removed from the agencies and reaffirmed our ratings going forward.
With regard to, I think your question around asset sales and I think you said with preps if I'm not mistaken, we balance both here. We've got the five plus billion dollars of asset sales as we mentioned. And in our plan we always factor around 15% of our capital structure being comprised of hybrid securities and preferred shares and that won't change going forward.
Great, I'll leave it there. Enjoy the rest of your morning.
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, Mr. Wiley. Yeah, thanks everybody for your participation this morning. For the questions that we didn't get to, please reach out to Investor Relations and the team was...
a pleasant day.