TC Energy Corporation Q1 2023 Earnings Call
Speaker 1: No.
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. After the presentation, there will be an opportunity to ask questions.
Speaker 2: To join the question, Q, you 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 3: I would now like to turn the conference over to Gavin Wiley, Vice President and Vester Relations. 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.
Speaker 3: 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. A copy of the slide presentation that will accompany their results is available on our website under the Investors section. Following the remarks, we'll take questions from the investment community. We ask that you limit yourself to questions. And if you're a member of the media, please contact our media team.
Speaker 3: 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 energy'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. 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: The remainder of 2023 are priorities are clear. First.
Speaker 4: Executing on our major projects.
Speaker 4: and industry leading high-quality secured capital program.
Speaker 4: at the VESTER program, which we expect to complete throughout the year. And third, safely and reliably operating our assets that provide essential energy services across North America. 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.
Speaker 4: First quarter results 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. In Canada Gas, we brought $1.1 billion of projects into service further adding
Speaker 4: In March, we also placed the Port Netsch's link 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.
Speaker 4: 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. And in Power & Energy Solutions, Bruce Power delivered exceptional availability of 95 percent on funding for international
Speaker 4: 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. 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 kilometers 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: on the Wild Lake compressor station has begun and natural gas has been introduced as part of the transition 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. Critical long-lead items, including the offshore vessel, have been secured and we've begun receiving materials.
Speaker 4: We anticipate commencing onshore construction for our compressor stations this summer.
Speaker 4: 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: 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. All right.
Speaker 4: Following the mile, milepost 14 incident on the Keystone System in December .
Speaker 4: We've been diligently working to restore the area to its original state. We're pleased to report that we've recovered over 98% of the released volume.
Speaker 4: working to restore the area to its original state. We're pleased to report that we've recovered over 98% of the released volume. A big thank you.
Speaker 4: for the continued support from the Washington County community.
Speaker 4: and we are dedicated to ensuring the affected area is fully restored.
Speaker 4: We've received the independent third-party root cause analysis and with these findings...
Speaker 4: We are committed 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.
Speaker 4: 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. 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. 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 deleveraging targets. We've also enhanced our governance practices and placed higher standards around sanctioning large or complex projects that includes the requirement for a Class III estimate, as well as an independent third-party assessment of the capital spend.
Speaker 4: as was the case with the Southeast Gateway. As always, we'll continue adhering to our long-established risk-return preferences. I'll highlight that 98% of our secured capital program is underpinned by long-term take-or-pay contracts.
Speaker 4: or rate regulation where we take no commodity price or volumetric risk. The resiliency of our business and capital allocation strategy is supported by a long-term view on energy fundamentals.
Speaker 4: Natural gas will continue to play a pivotal role in North America's energy future. And that aligns well with our current portfolio as well as our sanctioned projects.
Speaker 4: Lower carbon energy solutions will gradually increase in market share and we will intentionally migrate our portfolio composition, but gradually over time.
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, and their capacity to build our own assets.
Speaker 4: and their sustainability. Thanks, and I'll now turn the time over to Joel.
Speaker 3: Thanks, Brantz-Wah. Building on the record results we achieved in 2022, we said a new quarterly record during first quarter of 2023, there 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. 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. Average NGTL system deliveries rose year-over-year reaching 14.5 billion cubic feet per day.
Speaker 3: 14% growth in our US natural gas pipelines comparable to EBITDA 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 corridor averaged 28.5 billion cubic feet per day, with several of our assets performing at near record levels when demand was at the highest. In Mexico, comparable EBITDA increased 16% year over year, reflecting the north section of the Villa de Reyes pipeline.
Speaker 3: in the east section of the TULA pipeline that were placed into 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 EBITDA 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 outage days and higher contract pricing relative to the first quarter 2022.
Speaker 3: We are reaffirming our expected 2023 Comparable Evita 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. We continue to demonstrate cost-competitive access to capital markets.
Speaker 3: as evidenced 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%.
Speaker 3: 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: 15% of our debt portfolio is exposed to floating interest rates, we have programs in place to actively manage our exposures. Now turning to our funding program.
Speaker 3: 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 approximately $6 billion.
Speaker 3: This enhances our financial strength while providing optionally to further the de-leveraged or buyback shares.
Speaker 3: I'll note that the sources and uses outlined on this chart do not include the impact of potential asset investors that are expected to be realized through 2023. You can expect our incremental funding requirements to be reduced as our asset investor program progresses, allowing us to further accelerate our deleverging target.
Speaker 3: With respect to the dividends declared on February 13, 2023, the participation rate in our dividend reinvested plan was 38 percent, resulting in approximately $360 million reinvested in common equity under the program.
Speaker 3: The discounted dividend reinvestment plan is expected to be in place through dividends declared for the quarter ending June 30, 2023.
Speaker 3: Finally, I want to bring you to your attention to charts that truly capture the resiliency of our value proposition. First, PC's energy board of directors has declared a second quarter 2023 dividend of 93 cents per common share, which is equivalent to $3.72 per share on a annual basis. Second, we have delivered strong results.
Speaker 3: This is a testament to the strength that we're utility-like business model on wavering focus on safety and operational excellence, and North America's increasing demand for our essential services.
Speaker 3: 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. Now, don't pass the call back to France-Watt. Thanks, Joel. In summary, our priorities for the year are clear. Continue to execute on our major projects, such as CGL and Southeast Gateway. Accelerate or deleveraging targets by managing our capital spending and advancing our asset to the Vester Program.
And third, achieving safe, reliable and sustainable operations and our focus on operational excellence to drive higher returns.
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, de-leveraging, and greenhouse gas emission reduction targets.
I'm confident that the future opportunity set combined with our capabilities.
and reflecting capital discipline will unlock additional value and deliver superior shareholder returns well into the future.
Thanks, and I'll now turn the call back over to the operator for questions. Thank you. We will now begin the question-answer session. To join the questioning queue, you may press star then one on your telephone keypad.
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The first question comes from Rob Hope with Scotiabank.
Please go ahead. Good morning, everyone. First question is just on capital allocation. In the prepared remarks, it was known that, you know, sanctioning the capital must fit with the financial capacity of the organization. You know, how does, you know, well, small, how does this...
the Wind Acquisition fit with this. Why not pursue a more capitalized strategy for your renewable cheer just given you are selling some assets.
Good morning Rob. This is Corey Hessen.
These opportunities are the product of a 2022 process that's closing in 2023 and was already in our capital plan.
These are high-quality operating assets with best-in-class equipment.
generating immediate EBITDAF for the enterprise. 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.
We're in advanced discussions with credit-worthy counterparties for the power generation and the environmental attributes from these facilities.
In summary, the Texas wind farms are, within our capital plan, a modest capital investment to help TC Energy execute on our decarbonization goals.
All right, appreciate that. And then just moving over to Coastal Gas Link, you know, with the winter behind us, it looks like he has some successes on keeping the project on time non-budget here. However, as we look to the summer construction season, as well as the end of 2023 and service date, what do you see as the key risk factors on keeping the cost and schedule and how are you progressing against those? Thank you.
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 reaffirm our targets on both cost and schedule here for the year. Really what we need to be looking for during the balance is no different than what we've been working on today is that there are...
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 small discrete work scopes whether that be creek installations or rock buffs and so we've been developing
mitigation plans for any eventuality that happens on those smaller discrete workscopes. So while we're progressing extremely well on the entirety of the project, we've had to move to really a front foot on being proactive on.
having backup plans to backup plans. And so, you know, when we provide updates, we'll be focusing mostly on...
you know, how we've moved forward through these critical last areas of the project and we're necessarily implementing some of our backups. So just to give you some proof points on that, you know, we pre...
pre-located some equipment to allow us to work through some of the spring break-up periods of time so that we can provide a bit more float to the schedule. So, you know, as Francois alluded to in his remarks, you know, we've completed the trenching on Cabo Crane Hill. That's three months ahead of schedule. So we're trying to, wherever we can,
provide a significant buffer for us because we know that any of these critical workscopes could have us uh 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's on that was executed to plan we had over a million million man hours safely come
from Theresa Chen with Barclays.
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 asset sale process at this point. Now that it's been several months in the making, do you have additional clarity on the types of assets you're looking to invest, and how should we think about the valuation? Thank you, Teresa, and I appreciate that there's lots of interest in our
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?
service date, $4.5 billion in CAPEX, both of which is unchanged from when we FID'd the project this summer.
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 can commence at the end of this year.
Specifically to your questions, there are three key milestones that we are focused on this summer, diligently 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 take place in early 2024.
So, overall, we continue to incorporate the lessons learned from prior projects, such as CER to TEHAS, 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 Ezer-Gailis with TD Securities.
Please go ahead. Thank you. Wondering 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 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.
of additional wind or solar power acquisitions might be embedded in your budget for this year next year or potentially even added to what what you've baked in.
Thanks Linda, it's Francois, 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. That'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 $11.5 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.
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.
to get to a level of comfort where we can say that six to seven billion dollars 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.
trying to round out my understanding of coastal gas leak. 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 buffers and the Plan Bs?
the contingencies that you're lining up to ensure you stay on schedule. Thanks, Linda. Bevin here. So right now we're tracking really closely to our cost and schedule targets.
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. We look at this probabilistically and so under certain scenarios we're certainly going to draw...
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. So we were 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 executing of the project.
Thank you. The next question comes from Jeremy with JP Morgan. Please go ahead.
Hi, good morning.
Good morning.
I just want to come back to the CGL construction from a little bit of a different angle. I think there might have been kind of competition for labor between CGL and TMX. I was just wondering if you could comment there on high-sea
TMX progressing at this point, if it's close to kind of winding down, does that lead to 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
that scope of work looks a lot different than what TMX is focused on in this year's construction. And so, you know, we're very, very mindful that there are, there is competition for labor. We'll be focused on seeing how our labor force returns post the break up, but post the Christmas.
breakup, but 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.
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 measure 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 think about that.
Yeah, thank you. This is Tina Faraka with the U.S. Gas Pipeline Business. We did have a lightning strike this morning. Very early this morning that caused a fire within our fence line at the Corinth Compressor Station. The fire has since been extinguished. Very minimal impact to facilities.
And the next question comes from Robert Kwan with RBC Capital Markings. Please fill ahead.
Thank you. If I can come back to the treatment, keep the CAPEX below 7 billion. Just a question here. So first, does that include acquisitions? Second, the current period elevated CAPEX is really part of it's been driven by cost overrun. So just wondering how you'll think about managing your cost risk.
differently going forward? And then third, just specifically, what does this mean for Meaford, or are you excluding project bubble financing from that $7 billion number?
going forward and then they're just specifically, what does this mean for me for, or are you excluding project public financing from that $7 billion 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 gives us flexibility and optionality around further debt repayment and share buybacks. It also gives us additional flexibility to the extent we have any unforeseen circumstances around any one individual project.
Six billion or seven billion is our sanctioned capital. To the extent we have partners, that would be in addition or outside of that number. With respect to the specific peculiarities of any individual project in terms of project financing, that may or may not be considered depending on the project.
A project like Ontario Pump Storage is a significant undertaking.
This is not only a financial equation, it's also a human capacity equation. When you 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, you know, at a the stated rate grower cash flows at or above that rate and keep a stable balance sheet and maintain stable and very conservative payout ratios. So you know 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 six 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...
to grow our distributed cash flow per share at a rate at 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 that.
done less than a 15% FFO yield, 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. Hi, Robert.
jurisdictions.
Okay, thank you very much. The next question comes from Robert Catelli with CIBC Capital Markets.
Please go ahead. Hey, 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...
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, it's Francois. What I would tell you is, um,
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 would be open to proceeding.
gas portfolio and 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.
which are backed by long-term 20-year contracts.
So in some instances where appropriate, we also may consider taking on a strategic joint venture partner. But you know equally important, I just want to point out that we are laser-like focused on ensuring operational excellence and reducing our costs and doing so without sacrificing the safety or the integrity of our assets.
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.
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.
And so projects we're looking at developing right now and competing for have spend in that 25, 26, 27 timeframe where we do have additional capacity to sanction projects and stay within that $6 billion annual.
So, projects we're looking at developing right now and competing for have spend 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. Yep. And the next question comes from Ben Sam with BMO. Please go ahead. All right. 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 lofty multiples on renewal power assets and use.
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, underscore that it fits within the capital plan and the $6 billion per year limit, we'll consider ownership in projects. But as Stan mentioned in the context of our U.S. 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.
Okay, maybe I'll next on.
flexibility for share of 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? Over the next couple of years, that's not an option. Our priority is to have a
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.
2023 and 2024 is to deleverage. Our goal is to get at or below five times debt diva dah as quickly as we can without compromising shareholder value and then remain there. But 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 to have a
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.
and 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. You know, 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
the unlevered after-tax IRR is in the 10% range and that's above the weighted average IRR of what we sanctioned in 2021, which was I think in that 8.5 to 9% range. So we're seeing an upward trend in the returns on the project that we've sanctioned over the last couple of years and clearly
By limiting our capital spend to living within our means, it's going to give us the opportunity to high grade to our higher returns, but we also are going to consider having a proper 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, I would like to hear 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 just sort of conceptualize that and think about it? First and foremost, Andrea, and that's a great question, is we're going to focus on our human capacity. You know, 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 are going to be very mindful of maintaining the capacity and the capability to manage the capital program.
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.
You're welcome. 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 inspections and excavation work that needs to be completed across the system?
guess what the total cost of this program might do to your prior maintenance capex guidance as well as 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, I...
So, as we mentioned in our...
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 the MALPAS 14 as well as the PHMSA Corrective Action Order. 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 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.
At 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 work these remedial work plans and result of corrective action order, but I can 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, this work would form part of our operating maintenance and integrity scope for the system and that would be recoverable through our variable tolls.
I also don't have a cost estimate for this integrity scope I can share at this time. However, this work would form part of our operating maintenance and integrity scope for the system and that would be recoverable through our variable tolls. Okay, great. Thanks for that. Thank you for listening.
In terms of an update on the egress picture out of Western Canada and 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 and I'll start and then handed up back to the US 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 NC build this spring. So last year you would have known we put about 1.3 BCF of
the team. We had a significant increase in the intra basin and egress this quarter. That has been great to see the team and the performance there. That hasn't socked up the demand. We still have significant demand coming in.
on all points of egress, I would say, and interbasin. You would have seen we're about a BCF again on the supply side. So that's year over year, two years we've been over a BCF added to the system.
So while we've added that capacity, we are still at high utilization levels.
So you will see probably in 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 we will 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. And 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 Canadian volumes as well. So we're...
but we're seeing 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. The next question comes from Brian Reynolds with UBS.
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. 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 TMS this summer. Thinkig
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 crews.
folks will be coming back as I mentioned where 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 will be
in a much more significant ramp down of folks out there in the field. But 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. We're more focused on managing the risks.
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 on, 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, how does TransCanada handle asset sales versus perhaps impacting its earnings mix? Thanks. Thanks Brian and Joel here. It's the last question of the day and I finally get to respond. With regard to the credit ratings, we do value the credit ratings. As you've highlighted, we are in a negative outlook right now with three of the agencies being S&P, Moody's and...
and ultimately down to 4.75 times, that's our objective. And so with the plan that we have right now, with five plus billion dollars of asset sales, with our growing EBITDA, you just saw us today mentioning we had a 60% year over year 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 happy to have discussions later this morning.
We thank you very much for your interest in TC Energy, and we look forward to our next update. Have a great day. This concludes today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.