Q3 2023 TC Energy Corporation Earnings Call
Thank you for standing by this is the conference operator, welcome to the TC Energy third quarter 2023 financial results Conference call. As a reminder, all participants are in listen only mode and the conference is being recorded.
After the presentation there'll be an opportunity to ask questions to join the question queue. You May Press Star then one on your telephone keypad should you assistance during the conference call you May signal, an operator by pressing Star then zero.
I'll now turn the conference over to Gavin Wylie, Vice President Investor Relations. Please go ahead.
Thanks, very much and good morning like to welcome you to TC Energy's 2023 third quarter Conference call. Joining me Francois Poirier, President and Chief Executive Officer, Joe Hunter Executive Vice President and Chief Financial Officer, along with other members of our senior leadership team Francois will begin with comments on our overall operational performance Kevin will highlight.
Progress made to date on our announced intention to spin off our liquids business and finally, Joel will discuss our financial results and outlook a copy of the slide presentation that will accompany their remarks is available on our website under the investors section. Following remarks, we will take questions from the investment community. We ask that you limit yourself to two questions and if you're a member of the media. Please contact.
Our media team I'd like to remind you that remarks today will include forward looking statements that are subject to important risks and uncertainties for more information. Please see the reports filed by TC energy with Canadian Securities regulators and with the U S Securities Exchange Commission. Finally during the presentation, we will refer to certain non-GAAP measures that may not be comparable to similar measures provided.
By other entities. 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 GAAP and non-GAAP measures is contained in the <unk> of this presentation with that I'll turn it over to Francois.
Thanks, Kevin and good morning, everyone.
I'll start by saying our team is making exceptional progress towards our 2023 priorities our focus on execution is paying off.
Demonstrated by our strong year over year increase in comparable EBITDA and with our major projects remaining on track or ahead of 2023 targets. This is setting us up extremely well for 2024.
So far this year, we've placed approximately $5 billion of assets into service.
Including the majority of our West past project that went into service on November 1st.
Importantly, the projects placed into service so far this year have largely been on budget.
On the deleveraging front, we received $5 $3 billion in cash proceeds after closing the sale of a noncontrolling minority equity interest in Columbia gas and Columbia Gulf. This puts us firmly on the path to restoring our balance sheet strength and flexibility.
We also continue to evaluate an additional $3 billion of asset sales.
As a result post 2024, we're committed to limiting our annual net capital expenditures to six to 7 billion, which will also support further organic deleveraging.
We continue to see strong sustained demand for our services and thats maximizing the value of our assets.
Through safety and operational efficiency.
And as a result, we now expect our 2023 comparable EBITDA to be at the upper end of our 5% to 7% growth outlook compared to 2022.
While our natural gas pipelines businesses do not carry any material volumetric or price risk strong utilization rates do demonstrate the demand for services and the criticality of our assets.
On the N G. T O system. For example, we continued to see strong receipts.
In fact, the system achieved its highest single day record of $14 six Bcf on August 6th.
Same theme in the U S. LNG deliveries averaged three one Bcf a day a year to date in 2023 about a one 5% increase compared to last year's third quarter and in July we achieved a new all time record for deliveries to power generators, a five point too.
D C F.
Additionally, on our G. T N system, we achieved an all time delivery record of two point 96 Bcf and we're pleased to see that the G. T. N Express project recently received FERC approval. This project will expand the G. T N system to transport incremental contracted export.
Militated by the foothills West West path delivery program.
Okay.
We continue to make meaningful progress in Mexico.
The lateral section of V. D. R has been placed into commercial service.
And for the last remaining portion the South section, we expect that to be in service by the second half of 2024.
And our power and energy solutions business, we achieved significant a significant execution milestone with Bruce Power's unit six returning to service ahead of schedule and within budget.
This highlights our shared commitment with the Bruce power team on project execution excellence.
In addition, Bruce power also achieved 94% availability in the quarter and we continue to anticipate annual availability in the low 90% range for the units that are not down for the MCR program.
Yeah.
For reference in 2019 before we started the MCR program. The average availability at Bruce was 84%. So what we've been able to deliver over the last several years is a 10% increase in the average availability largely due to the steady deal.
Greece, and the forced loss rates and the reduction in planned outages.
Following the completion of the MCR program, we expect to continue to see increases in availability.
Furthermore, on our Alberta co Gen fleet, we achieved approximately a 98% peak price availability during the third quarter and that with Alberta power prices, averaging $152 per megawatt hour.
And on Keystone.
Our operational reliability was close to 94% year to date and Bevan will come back to that in just a few minutes.
To sum up our operational excellence, our unparalleled asset base has been delivering strong operational results and strong availability, which has translated to solid sustainable financial results.
Through every phase of the economic cycle.
As I mentioned earlier, we've sharpened our focus on project execution.
After five years of construction and 55 million hours worked with.
We've now achieved the monumental milestone of mechanical completion on coastal gas link and we achieved this ahead of our year end target.
This means that 100% of the pipe has been welded coded lowered into the trenches. We've completed all 800 classified water crossings with hydro tested the entire of the pipeline and incremental to our announcement on the project last week.
We've now finished the documentation and additional engineering analysis associated with the mechanical completion milestone.
Coastal gas link as Canada's first pipeline to the West coast and 70 years.
And once operational it will be the first direct path for Canadian natural gas to reach global markets.
The next steps on this project our introduction of natural gas project commissioning and the land reclamation work that has already begun across the route.
As mentioned in our press release. This morning. The project also remains on track with our approximately $14 5 billion dollar cost estimate.
Now turning to South East Gateway.
Looking at progress on the onshore portion of 25 kilometers all land has been acquired and construction at all three landfall sites is progressing on plan.
In preparation for offshore work, our engineering is complete and concrete pipe coating is well underway. We are expecting the 690 kilometer offshore pipe installation to begin by the end of this year.
Now we continue to see benefits from our enhanced capital allocation governance process.
And on South East Gateway that means that that project remains on track to be placed into service.
As expected in mid 2025.
Okay.
I want to take a moment to recognize our board chair seem Venezuela.
For his excellent leadership role during a time of significant change at Tc energy.
By the 'twenty 'twenty four annual General meeting seamless I've served on our board for 10 years.
And he's been chair for the last seven.
I'm very grateful that theme will continue to offer his knowledge and expertise as he steps down as chair, but continues to serve as a member of the board and a director of capacity.
As part of our Board's ongoing succession program, John Lowe has been designated as TC Energy's next board chair.
His significant midstream and energy experience and his role as a board director of TC energy since 2015 make him ideally suited to take on this critical role.
And now I'll pass the call over to Ben.
Thanks Francois.
In July we announced the intention to spin off our liquids pipeline business into a standalone investment grade entity in order to maximize the commercial potential of this highly competitive corridor. We've made important progress in just three months and I want to take a few minutes. This morning to discuss some of the highlights today I'm thrilled to share the name of the new.
Liquids pipeline company, South pole, South both symbolizes the historical roots of the company established near the Bow River in Calgary.
<unk> acknowledges the pipeline system strategic corridor, which enables the company to deliver a premier resource southward to the strongest U S refining markets in both the Gulf Coast and the Midwest.
Last month, we also shared the news that how quickly has agreed.
Agreed to be appointed as the chair of South pose for Boeing Board of directors.
How does that distinguished industry leader with extensive experience spanning a wide range of companies across the energy space. He was also transcanada's president and CEO from 2001 to 2010 back when Keystone came into service he knows our liquids assets and knows this business very well.
We look forward to welcoming house leadership and guidance in this key role role at South pole.
I want to remind you of some important points around the value of the spin spin off will bring to shareholders. We made this announcement last quarter. We received strong support from customers. There are a few reasons for this the assets in our system are critical to meeting customers needs and we are seeing additional dimmed.
<unk> for incremental service that reflects the competitive nature of the corridor, we connect some of the largest and most resilient supply demand and export markets and offer the fastest most cost competitive pathways from the western Canadian sedimentary basin to the Gulf coast will be able to drag.
Cash flow flexibly without competing for capital in a company that strategically focused on maximizing the synergies in its natural gas and power businesses.
Our premium value is supported by our compelling and sustainable dividend yield and low risk highly contracted business with competitive advantages in contract structures. Unlike any of our peers fundamental to our value proposition is that south Boe is expected to be an investment grade entity at the time of <unk>.
Ben.
This expectation remains in the current interest rate environment, we will look to establish the capital structure in a constructive capital markets environment. Furthermore, there is no time limit for us to affect the spin.
We fully expect to have the capital structure in place prior to the spin to the extent, we have not stood up the capital structure in its entirety. We have several we have various tools available, including access to the bank term loan markets and utilizing hedging instruments, if appropriate to allow us flexibility to <unk>.
Optimally implement the long term capital structure at South pole.
Our team is also committed to excellence in our operations throughout the third quarter. Our system continued to perform exceptionally well we are seeing strong sustained demand in the U S. Gulf Coast for Canadian crude we successfully completed two open seasons on market link this system is operating well as.
Francois mentioned keystone's system operating reliability year to date is approximately 94%.
As a result year to date comparable EBITDA of $1 1 billion from the liquids business was up approximately 8% versus the same time last year.
As of this past week.
We've completed the cleanup that milepost 14, and restored natural flow to Mill Creek, we think the local community, Washington County, EPA, Kansas Department of Health and environment and the Army Corps of engineers for their support and assistance as we concluded. This work we will maintain a presence.
At site to progress long term reclamation activities and environmental monitoring.
Might you to look at our website for additional details.
With respect to inspections across Keystone, we have completed inline inspection across 60% of the entire system. The integrity digs program is 50% complete and we anticipate being fully complete by early second quarter next year no concerning circumstances have been identified and we continue to.
Liver on our contracted volumes.
You'll hear more details at our upcoming Investor day in a few weeks now I'll turn it over to Joel.
Thanks, Kevin.
During the third quarter, we continued to deliver strong performance, leading to a 7% year over year increase in comparable EBITDA.
Primary drivers include.
Higher flow through costs and increase <unk> rate base earnings in our Canadian natural gas rate regulated pipelines business additional assets placed into service and our Mexico natural gas pipelines business.
Higher long haul contracted volumes as well as higher volumes on the U S. Gulf Coast section of the Keystone pipeline system and the impact of a stronger U S. Dollar.
As Francois mentioned, given our strong year to date performance. We now expect our 2023 comparable EBITDA to be at the upper end of the 5% to 7% outlook compared to 2022.
Comparable earnings per common share expected to be generally consistent with 2022.
Year to date, we have placed approximately $5 billion of projects into service and cause.
Including capacity projects, and our natural gas and liquids pipeline businesses and Bruce Power's unit six MCR program.
Total capital expenditures for 2023 are now expected to be approximately 12 to $12 $5 billion I want to note that the estimated cost of major projects remained consistent.
The increase primarily relates to our decision to bring forward 2020 for capital expenditures and work into 2023. This includes accelerating the timing of certain maintenance and growth capital expenditures to optimize efficiencies and mitigate project execution risk in our natural gas pipelines businesses.
As well as the foreign exchange impact of a stronger U S dollar.
We've also delivered meaningful progress towards our deleveraging target we.
We have a clear path to achieving our $4 75 times debt to EBITDA target by the end of 2024 and remained there beyond 2024.
On October 4th we successfully completed the 40% minority equity interest sale in our Columbia gas and Columbia Gulf systems cash proceeds from this transaction of $5 $3 billion will be directed towards reducing our year end 2023 debt to EBITDA metric by over 0.4 times.
We're continuing to evaluate capital rotation opportunities in the range of $3 billion.
Our deleveraging is further supported by organic comparable EBITDA growth as we place additional assets into service.
As of November 1st substantially all of the West path delivery program on our NGL system has been placed into service. This brings our year to date total to approximately $5 billion.
In 2024, we expect to place approximately $7 billion of projects into service, including coastal gas link <unk> Express and the South section is available to raise pipeline in Mexico.
Looking to 2025, we expect to place $9 billion of assets into service and an average build multiple of approximately eight times.
This includes our southeast Gateway project in mid 2025 expected to contribute approximately $800 million in incremental annual comparable EBITDA, along with an additional $3 billion of assets on our U S. Natural gas pipelines business. Some of which include Gillis access extension, Virginia reliability at Wisconsin.
Some reliability projects.
Now in light of volatility in the market I want to remind you of the stability of TC Energy's low risk business model.
We have a very manageable debt maturity profile and 89% of our long term debt portfolio is comprised of fixed rate debt with an average maturity of 18 years and a weighted average pretax coupon of just over 5%.
This largely insulates us from the impact of interest rate changes.
Our Canadian and U S natural gas pipe gas businesses are also underpinned by rate regulated frameworks that further allow for the recovery of interest expense in tools.
This means the cost of debt is a direct flow through in our regulated Canadian business and is factored into U S rate cases.
This in part has allowed us to increase the earned returns on our sanction capital projects over the last few years and maximize the spread versus our cost of capital.
Based on our low risk business model in combination with net capital expenditures of $6 billion to $7 billion annually post 2024, we expect to continue to grow our business commensurate with our 3% to 5% dividend growth rate.
This is why despite the challenges faced in the broader market I am confident in the sustainability of our dividend through all parts of the economic cycle, which is further bolstered by one of the lowest payout ratios amongst our midstream peers.
[noise] Tc Energy's Board of Directors has declared a third quarter dividend of 93 per common share equivalent to $3 72 per share on an annualized basis or.
Our dividend will remain foundational to the enduring value proposition of TC energy to further build upon 23 consecutive years of common share dividend increases. Thank you I'll pass the call back to France what.
Thanks, Joe before we turn it over to Q&A I, just wanted to reiterate our long standing value proposition.
Our recent strategic announcements are all in direct service of our four pillars.
We take a long term view by maximizing the synergies of our natural gas and power businesses simultaneously. We are unlocking the full long term potential of our liquids business through our intended spin.
We're also remaining disciplined and refocusing on our well established conservative risk preferences.
Or restoring our balance sheet strength, and we're allocating capital thoughtfully and in a manner that balances our ability to grow the dividend.
While maintaining balance sheet strength and reinvesting in the business.
You'll hear a lot more about this at our upcoming Investor day on November 28th and I Hope youll be able to join us with that I'll turn it over to the operator for questions.
Thank you we will now begin the question and answer session to join the question queue. You May Press Star then one on your telephone keypad, you always hear a tone acknowledging your request. Please limit your question with you and if you should have additional questions. Please re enter the queue. If you are using a speakerphone. Please pick up your handset before.
Pressing any keys to withdraw your question. Please press Star then two.
Our first question comes from Theresa Chen of Barclays. Please go ahead.
Good morning, and thank you for taking my questions.
First I'd like ask about.
Abbas.
The plan is to manage Mexico exposure.
Pro forma asset sale and the soft close then given that you already have cash flowing assets there and.
Hum mid 2025, once a gateway a dark cloud.
We'd like to be above that 10% exposure and how you're thinking about managing this and any comments related to asset sales specifically within that segment would be great. Thank you.
Thanks, Jason as Francois I'll take that went on.
Reiterate our you know our.
Our commitment and our goal is to execute on an incremental $3 billion of divestitures.
And realize the cash proceeds thereof within 2024 part of that program.
May include some discrete asset sales in the U S, but in terms of.
Entering into joint ventures, as we have with <unk> on our Columbia assets, we can look to.
Our Canadian assets, and our Mexico assets for for those types of transactions being contemplated.
Obviously, we're going to be a in our conversations with investors around our Mexico projects.
Balancing valuations with them, where we are and the progress we're making around construction.
We've made the commitment to reduce our exposure.
To to a more manageable level and overtime will be giving you all a little bit more clarity and granularity around.
The percentage post spin as well as a percentage of what is it EBITDA is it net assets.
Because we are looking at tools like project financing, we've actually raised nearly $4 billion of nonrecourse debt over the course of the.
The last year to fund about two thirds of our of the southeast Gateway.
The project financing so more.
More to come there and as I said, we'll be looking to joint ventures in Mexico, and Canada as a potential tools to execute on our $3 billion divestiture program. Our goal is to reduce our exposure in Mexico as a percentage of the overall average.
And given the sensitivities of our conversations we're going to I guess I'll leave it at that at this point.
Okay.
Understood. Thank you and on the.
The remaining asset sales in general.
How are you thinking about the economics and in today's environment and in light of the AR.
Recent announcements by some of your competitors in the market also.
Assets up for sale and the recent validation paid for.
Or similar assets within the valuations that you operate in.
Yeah Yeah.
Look at some of the announced transactions Ah I would suggest that there's a pretty wide range of risk profile and therefore, the returns that are expected returns that buyers need to be able to realize and that translates into purchase price. What I'd tell you is we are still in the same interest rate environment. As we were a few months ago, when we announced.
Our transaction with Gi P.
We did.
Make the objective of announcing a very sizeable transaction at that time I do believe that since we are proceeding with them.
Multi.
Multiple transactions to achieve the balance of the 3 billion that smaller bundles will garner more competitive tension and so.
Despite the fact that we are in a similar interest rate environment smaller assets more competitive tension and then you have to account for the fact that the assets that we would make available either for partial or full interests are at very low risk.
Highly contracted no commodity volumetric or price risk and that will be factored into what.
How people value the assets, but again as I said, whereas we're still on the same interest rate environment as we were a few months ago and so.
Yeah, well I think we have fairly conservative expectations in our plan.
Thank you.
Thank you Theresa.
Our next question comes from Puneet <unk>.
<unk> of Wells Fargo. Please go ahead.
Hi, good morning.
With capital here Capex being constrained in the 6% to $7 billion range in 'twenty four and beyond.
Imagine that you're becoming more selective on what projects you bring to F D and maybe turning down some of the lower return projects. So can you maybe help us understand whether theres been a shift here in terms of your corporate return target, which has historically been in the 7% to 9% range and whether that's a that's trending higher.
Okay.
Thanks for that question for me that the answer is we have definitely seen an upward trend in the IRR is for projects we've sanctioned.
Clearly as we will be high grading, we have an opportunity set that is well in excess of the $6 billion to $7 billion. A year, we are resolute and living within that number. So that allows us as you said to be a bit more selective.
And one of the important criteria is going to be the risk adjusted returns. If you look back to 2019 or thereabouts. The projects. We sanctioned in that year were in that 7% to 8% range and that has gradually crept up over time to the point that in 2022.
We saw a sanctioning projects in that 9% to 10% range and in the environment. We're in today, we do continue to see sanctioning.
Projects are in that range.
That will be adjusted up or down depending on.
The proportion of the portfolio that goes for example in Canada gas, where the returns are a bit lower versus in something like Bruce power, where the returns are are higher so on a on an average basis. We have seen those returns increase and we've been able to in our conversations commercially with our customers.
To sustain levels as we've seen over the last year or so.
Yeah.
That's helpful. And then switching gears I wanted to ask about the next rate case for Columbia gas in 2025, as we calculate it the ROE on Columbia gas as it was only 10% based on the 2022 filings. So it seems like there's some headroom there to maybe boost the revenue and <unk>.
25, so I guess, how should we think about the magnitude of the next rate case on Columbia gas versus the last rate case, where you got I think a $200 million step up.
Yes, I'll ask Tina to cover that one.
Good morning, we have a moratorium currently on new rates going into effect. Prior to April 2025, and you May recall, we also had a comeback for new rates effective April one 2026, so we'll be working within those bounds for filing of our next rate case, and obviously will be asked.
Driving for a balance of recovering our our capital and earning a fair return and maintaining competitive rates with our customers.
What I would add also here.
Just to remind you of the point Joel made before.
This is the way in the U S by which we mitigate interest rate risk every time, we go back for a rate case, we can incorporate the current cost of our debt into our rates.
And.
The reason why Youre seeing us increase the frequency of our rate case filings across our U S system is because.
We want to reflect the capital the interest rate environment that we're operating in but also because we're investing a considerable amount of maintenance capital, which we wanted to make sure we're earning a return on and of that incremental capital as well.
Thank you.
Okay.
Our next question comes from Linda <unk>.
Of TD Securities. Please go ahead.
Thank you.
I'm wondering with coastal gas link mechanically complete ahead of schedule.
How might we think of your discussions with LNG, Canada in terms of maybe they're recognizing that.
That early completion with some sort of financial incentives.
And.
Two how might the commercial activities.
With wholesale gasoline, sometimes one and just broader thoughts around timing to get to F. D on that.
It might be the sticking points, including maybe question is powered on.
Thanks for that question, Linda I'll ask <unk> to cover.
The items around the early completion of phase one and then Greg to address your questions around phase two.
Yes, Thanks, Linda this is bevin.
So first of all.
We are tremendously proud to achieve this milestone is a testament to the team's relentless focus on safety and protecting the environment and collaborating with our contractors.
Indigenous in local communities and governments to get to this point. So we're really proud to have achieved chief. This early mechanical completion something that we didn't anticipate but we're really proud we've got there.
With respect to the next steps.
Obviously have ongoing.
Commercial dialogue with our contractors choose to make sure that we close out those contracts effectively we have about 100 plus kilometers of reclamation work to be done next year.
The team is busy right now introducing <unk>.
Natural gas into the system to become ready for LNG C to.
Call for that gas.
We look forward to achieving that milestone here by year end, where we're ready for for our customer when they need it as it pertains to phase two in those discussions I'll turn it over to Greg.
Yes. Thank you.
Currently our just who we are progressing early development of phase III.
As requested by LNG C to assess further expansion opportunities. So early engineering, we're looking at different potential electrification options.
But still a lot of work to do there and engagement with our local communities and indigenous partners.
So it's quite early you might know that Cedar is actually a little more timely in terms of the process for them.
Completion of phase one.
We have been working diligently with.
Our senior partners.
Which include the highs law does it will be Canada's first indigenous majority owned LNG facility.
We were targeting.
At the end of this year.
We think that may slip a little bit as we head into Q1, but just I wanted to leave a reminder, with you that as it pertains to our six to 7 billion capital commitment.
RFID is conditional on TC achieving project financing that combined with our 35% equity ownership would ultimately require a fairly small amount of capital from a Tc.
That's helpful context.
And just as a follow up in terms of you or your capex recognizing that we'll probably get a more fulsome update later this month, but it would be helpful and updating our models understand kind of with some of the 'twenty 'twenty four capital accelerated into 2023, and you know but.
But there's probably some headwinds.
And on the Opex front for 2020 for Capex, how might we think of your.
Current outlook for 2020 for growth Capex on a gross basis before netting out any sort of asset sales.
Yes, good morning, Linda it's Joel here.
I'd, just say to offer to wait until our Investor day here on November 28th as it relates to our 2020 for outlook for our capital spend both on a gross and net basis, but I will remind you post 2024, as we've been saying all along that we adhere to capital discipline and maintain a six to 7 billion.
Per year post 2024, but we'll have more for you here at Investor Day on November 28th as it relates to our outlook for 2024, and what I might add to that Linda is.
Our plan and the capital program that we've got in the works for 2024 does allow us to achieve getting below $4 75 debt to EBITDA by the end of the year and then staying there on a go forward basis, but as Joe said there'll be more color here in just a few weeks, but I appreciate the question.
Okay.
Okay.
Our next question comes from Rob Hope with Scotiabank. Please go ahead.
Good morning.
During the Q2 call a number of kind of organizational changes were announced just wanted to get an update of how kind of the reorganization of the of the.
The organization has changed as well as where you are in terms of the $750 million of synergies and how are they tracking overall level as in 2023.
Thanks, Rob it's Francois I'll, just start with a little bit of context, and then pass it over to Stan to address the specifics of your question just to remind you that you.
These initiatives and thinking around this has been in the works for a couple of years in terms of our initiatives on focus were really in the implementation phase.
The a consolidation of our gas businesses into one entity.
As well as the spin these are things that have been stood up and the teams have been working on for quite a long time, so over to you Stan.
Iraq are focused project as we refer to the $750 million initiative.
It's about fundamentally changing how we do our work, particularly around safety operational excellence and our capital and cost management in order to ensure that we're deploying our cash as efficiently as possible and to maintain our competitiveness against our peers.
Just to give you a couple of proof points with respect to things like operational excellence and safety, we have simplified our operational management system by reducing over 1400 historical requirements down to less than 100.
This frees up the time for our field employees to increased tooling had time and make them more productive and other things.
On the cost of the capital management side by combining our three gas businesses under under one leader and we have identified about $750 million and run rate synergies to be realized by the end of 2025.
And you could think of the value that's linked to these synergies.
As materializing in a couple of different ways it could be capital reductions it could be expense reductions or even revenue enhancements and generically you can think about 50% of the savings is going to come from capital reductions, 40% from O&M reductions and about 10% from revenues, but do keep in mind that as we file rate cases in a risk.
If jurisdictions a lot of this value is going to flow back to our customers. If you want a little bit more detail around how we get to $750 million that can offer a couple of proof points for you for this year for calendar year 'twenty three we're on track to generate $130 million of in year savings, which on an annual basis equates to about 100.
$85 million and we did this by things like reducing our spend by $50 million to eliminate redundant or low value projects. We've eliminated our combined our technical center into the business that save $30 million, we reduced our legal and our insurance costs by $30 million. So a lot of optimization on that front.
Over the next two years in 2024 and 2025, we see another $200 million of savings are primarily in our growth capital programs by changing the way we're engineering our facilities for example, and reducing our footprint, there's another $85 million of reductions associated with our pipe integrity program.
$90 million of reductions in our maintenance capital projects, which will materialize starting in 2024 and is already baked into our 2024 forecast and as you think about the optimization.
The Oregon of structure organizational structure design, and we think that theres, probably about $50 million worth of synergies as we go through and integrate and optimize our gas business is under one umbrella.
Okay.
Thanks for that.
And then maybe just moving over to the NGL system. There's a telephone went through to the end of 2024. When do you expect to kind of engage customers. There could we see a higher ROE there and then how does that balance with the potential for a partner.
I'll ask Greg to take that one.
Yes, thanks, Rob.
As a reminder, the NGL settlement will end December 31 2024.
Discussions with customers have started.
With the objective of defining a clear path.
Towards another settlement mid 2024.
While we are watching the market and ROE.
Just mentioned ROE is not the only measure of value that we look at.
We are looking to optimize the return on and of capital there are many levers to do this.
While we can maintain a competitive toll and service offerings. So things like project focus are helping us minimize toll increases which will allow us to enhance that return on and of capital.
Obviously, we won't get into the details of a confidential negotiation.
But highly confident we can find win win here with their customers and likely won't be able to share more details on that until Q1 Q2.
Thank you.
Our next question comes from Robert Kwan of RBC capital markets. Please go ahead.
Good morning, Mike.
To start with the business. So you highlighted on the gas system strong deliveries and record deliveries on the number of it systems.
You've got a bunch of projects under construction, you've got some new regulatory approvals I'm just wondering as we look forward.
As you look at the volumes on the system.
Are there new projects that are taking shape and yes. There are can you just talk about the magnitude of what that spending might look like and over what timeframe that spending might unfold.
Yeah.
Robert It's Francois Thanks for that question I'll I'll I'll take that one.
Just remind you that we're laser focused on our 6% to $7 billion a year going forward post 2024 on a on a net basis and as you know in our business. We have the benefit of a fair bit of visibility into capital spend all the way out really to the end of the decade. When you think about the fact it takes a couple of years to.
Sanction a project and then a couple of years to get the requisite permitting and regulatory approvals and then you'll have to order the long lead items and then euro.
You are a year or two in the field doing construction. So as we look out to the end of the decade. Our goal is not only to live within our 6% to $7 billion, but also.
Not to have more than one large project at a time, it's something one of the key learning for US here over the last couple of years is to is to manage the aggregate risk of the AR of the capital program annually not just at the risk of the individual projects as we look at that.
Graham.
And our performance and case in point as I mentioned.
We've got $5 billion, we put into service. So far this year largely on budget and that means singles and doubles and those are very manageable from a risk standpoint, we know the regulators we have relationships in the communities. We know the ground and so look to us.
Executing as many of those singles and doubles as possible going forward organic projects in corridor and.
A very select few of those larger projects that.
With span many many years and large dollar amounts.
Yeah.
Got it.
I guess just thinking about it.
The capex shifts and the FX impacts have you talked to the rating agencies yet about this with respect to your FX rates fall Youre going to get you that marks this year at December 31 that your EBITDA is going to be trailing so.
You think that just with some of the outlook.
I guess in 2020 for yourself for 75, but does it change anything here for you around the funding plan in the near term.
Yes, Robert it's Joel here at city that I had conversations with all four agencies as we do every quarter just to give them and provide them with an update and we provided them with this update as well.
Theyre looking through relate to the end of next year as it relates to getting our leverage metrics on slide to that $4 75, as we've mentioned and we do have a path to get there.
And we're sticking to that plan so despite that the costs being slightly higher here and what we're talking to here is about a 4% increase from the midpoint. When you think about the increase in our outlook for this year.
But we're also seeing a stronger EBITDA as you've seen US guide, our EBITDA to be 7% higher year over year at the upper end of that 5% to 7% range that we highlighted.
So as we go into year end, we don't have.
Can't say, where they where the debt to EBITDA will land because there are still some moving parts with EBITDA, where the capex ultimately lands and where FX lands, but really the objective here Robert is to get to that $4 75.
As we exit 2024, and we clearly have a plan to get there and the agencies know what our plan is and we'll stick to it.
Okay. So in short you don't expect any rating agency actions office the change today.
Now we can't speak to the agencies, obviously, but you know based on our discussions they they're very.
Pleased with some of the.
The things that we've accomplished this year, you think about where we started the year with our priorities being a $5 billion of asset sales, we completed $5 3 billion.
Advancing major projects like CGI, having that mechanically complete southeast gateway moving along and still continued strong operational and financial results. So we've hit on all of our priorities for the year and that's not lost on them.
Great. Thank you very much.
Yeah again, Robert just wanted to underscore the increasing our capital program was because.
Part of the benefit of merging our gas businesses is that we're looking holistically at our portfolio and where there's opportunities to bundle work together to deliver it at a lower cost and more efficiently.
We're going to do that and Thats. The decision we made that's the visibility that having an integrated gas businesses business affords us.
And and so coastal gas link.
We delivered a we're delivering on our outcome.
$5 billion of assets on plan as well. So this is really about doing more work. In 2023, then we were planning on doing them as opposed to you know.
And any inflationary impacts on our projects.
Or FX are driving us driving the capital however.
Our our U S. Dollar program is our U S. Dollar program. So there's no inflationary effect because of foreign exchange translation rate and the rating agencies are aware of that.
Got it thanks Francois.
Our next question comes from Jeremy Tonet of Jpmorgan. Please go ahead.
Hi, good morning.
Good morning, good morning, Jeremy.
Just wanted to start off with the asset sale program. If you could turn it back to that for a minute.
With regards to the $3 billion being discussed I E.
Is there.
Can't say it could be a number larger than that and if so what would be the number of that in if you think about asset sale or capital recycling in the future is it largely just a function of rates of return that can be garnered through inc.
Incremental new.
New growth projects relative to the you know what returns are loss on asset sales. Just wondering if you could give us holistically more thoughts on how that how your asset sale program looks at this point.
Thanks, Jeremy as I said before we're going to stick to the $3 billion here in 2024, we're not going to be looking to one transaction to a realized the proceeds will be looking to multiple transactions to do that.
I think it's.
A good practice for us on an ongoing basis to have the discipline to mark our assets to market and rotate capital to the extent that creates value for our shareholders. So on a go beyond the $3 billion.
You know you could see us selectively over time, if we have an opportunity to.
Invest capital to proactively ahead of time monetize assets that we think are more mature or where we see some value. So it is going to be an ongoing tool in our tool kit, but for 2024. The focus is on $3 billion.
Got it that's helpful. There, thanks and I.
Just looking forward to the analyst day, and wondering if you could provide any thoughts.
At this juncture as far as you know a key updates that we should be looking for or any other thoughts you could share at this point.
Ah I you know the I would say a wait and see.
Yeah.
You look at our our goal here going forward is returning to no surprises.
Just execute well live within our means demonstrate project execution excellence demonstrate operational excellence and we're very proud of what we've accomplished here in 2023, we'll be talking to you about what our 2024 priorities will be but trust me they will be around balance sheet integra.
<unk> operational excellence and project execution excellence and it shouldnt be any more exciting than that if I'm honest.
Jeremy.
That is helpful. Thank you very much I'll leave it there.
You bet.
Our next question comes from Robert <unk> of CIBC capital markets. Please go ahead.
Hi, Good morning, I Wonder if you could describe the agreement Tc energy into it.
Entered into with the Si listens LNG partnership to work on the Prince Rupert gas transmission project and.
What's the company's appetite to undertake another major project like that and how that might fit within your deleveraging goals.
Thanks, Robert It's Francois I'll take that one look.
We have a permanent path.
We recognize there is value in that path.
We've been asked by the <unk> group to preserve those permits.
That is our contractual obligation we're happy to do that first of all because it's an opportunity to create Val.
Value for our indigenous partners secondly, it's an opportunity to create value for our customers.
And as we increase egress out of the basin it increases value for our NGL system.
Those are all things that are to the benefit of TC energy I want to be very clear. However that we are resolute around our 6% to $7 billion and to the extent, we cannot fit a PR GT project or any projects for that matter within our portfolio.
Number one and number two to manage to have less large ambitious projects going forward due to the extent.
We can't fit them.
A project like <unk> within those.
There won't be any allocation of capital.
Okay, that's pretty clear and then just wanted to move on a question for Joel here.
Just how do you see hybrids are fitting in.
Your your funding plan, both in 2023 as well as reaching 24 goals.
I was sort of your appetite, there and what youre seeing in the market.
Yes, thanks, Rob so as we think about hybrids.
Seeing anything we don't have any plans in the near term, we're running close to that 15% cap as it relates to our capital structure for this year and into 2024.
As we do see the balance sheet grow post 2024, there will be capacity for future hybrid issuance, but what should we think about our $4 75 target for next year. It doesn't contemplate any additional hybrids in that plan at this point in time, where we will look to hybrids. Those is will work in conjunction with the liquid.
The team here or I guess the.
South both teams as we call it now.
<unk> to look at their capital structure, where there might be a need for them there as it relates to tier two pricing right now it's kind of in the high eights. So it's about 200 basis points back of where we would issue 10 year senior unsecured at this point in time.
Okay.
Okay. Thank you.
Okay.
Our next question comes from Ben Pham of BMO. Please go ahead.
Alright, thanks, and good morning.
The coastal gas link project.
Complete does that does that open up.
A wave of new NGL opportunities at post 2025 time frame.
Thanks, Ben I'll ask Greg to take that one.
Yeah sure. Thanks, Ben for the question as you are aware, we have been a substantial.
Oh, we will carry on.
As you're aware, we've done a substantial build on the NGL system over the last few years.
We delivered one three Bcf last year. Similarly, we're gonna add about the same this year and just a shout out to the team that we've talked about earlier, but on time and on budget performance again this year so grid.
Great opportunity there.
Going forward, However, I would say.
You should see a more normalized level of spend on NGL. We think we're set up for the next few years with the expansions that we've already done.
And we're doing a lot of work through project focus and optimizing the system to see what extra capacity, we can get out of the existing assets without capital, but we're in a great spot to handle the expansions going forward.
Okay.
Okay.
Question on I know you mentioned there was a question around.
Returns and maximizing your returns in the NGL anticancer system.
Is there any thoughts or motivation on the question of Athene equity.
A portion of the pipeline, where you can capture more cash and deleverage standpoint.
Uh huh.
We're in the front end of a negotiation process with our customers as.
Greg mentioned will be.
Providing some feedback and color as next year proceeds.
It's too early at this point to provide.
Provide any indication as to where those discussions are heading but whenever we can we will be sure to provide some color to our to our shareholders and to other stakeholders.
Okay.
Okay.
Our next question comes from Brian Reynolds of UBS. Please go ahead.
Hi, good morning, everyone.
A follow up on coastal gas link good news on the mechanical completion. So maybe as we look ahead towards earnings expectations next year, just kind of curious how we should think about EPS or EBITDA contribution as it relates to this asset just given that LNG, Canada won't be online.
LNG, Canada reimbursed T C for maintenance costs or was there kind of a regulated return framework embedded in there just how perhaps just wondering how we should think about coastal gas link earnings before LNG, Canada comes on line hopefully in 'twenty five.
Thanks, Brian I'll kick it off this is bevin.
So there's there's.
As you would appreciate even in the Gulf Coast LNG projects take a while to commission.
And bring into service. So we've done our part by bringing the project in on time and by the end of the year and we'll have to wait and see how LNG C progresses, theyre, making strong progress, but I'd anticipate that a good part of next year is in commissioning process.
Brian I would just add it's Joel here when we think about the returns from from CGM first of all we own 35% today that could go down to 25% at first nations pick up their 10% options. So we don't have obviously significant ownership in the project and we look at the amount that we've had to impair as it relates to.
This project roughly $3 billion last year and just over $2 billion. This year, you can read into that that there's not going to be a significant return for us here on this project.
Going forward the key was really to get the project completed.
On schedule with the revised budget that was critical to us and safely obviously, but as we look at the amount of incremental equity income that we would generate from from this investment it's not going to be that significant.
Great I appreciate the other color maybe to pivot to the South Belo Corp too.
Two part question. If you could just discuss how one conversations are going with the agencies around being investment grade.
In the slide deck, you kind of alluded to manage its a floating interest rate exposure and just kind of curious is five times is still what the agencies are looking for and then second part of the question for the <unk>. It looks like you have 2% to 3% of Dps growth reaffirmed from the spin, but only roughly 200 million unsecured capital backlog at this time. So you know clearly the companies are going to separate.
And be able to pursue different opportunities. So just kind of curious who can sensitize you know what that secured capital backlog at the liquids company could look like post spin.
So Brian it's Joel here I'll take the first part of that question before handing it over to Devin.
Again, we are working closely with Devin and team to support.
Their financing I would say to you that nothing has changed since the last update here at the end of July when we went to the agencies with.
Our deemed capital structure and got our indicative ratings at that point, which would be investment grade based on roughly five turns of leverage so nothing has changed right up until now we.
We would expect to go back to the agencies here some time kind of late winter early spring.
As we finalize things here as it relates to the capital structure for for South.
And to get firmed up ratings as South forward, then look to after the spin has been approved.
To start establishing the capital structure at that point in time, but I'll remind you what is fundamental to this is that south pole will have an investment grade rating no matter what.
And then Brian I'll answer your second part this is bevin so.
Just a reminder, our value proposition as a total shareholder return that we're seeking double digits for our shareholders. That's made up of our.
Our high yield components through a very sustainable dividend.
Underpinned by best in class contracts and.
The activity of our quarter from a supply base into the strongest demand that dividend coupled with the 2% to 3% growth that you've articulated that comes from two points first it comes from operational and commercial excellence on our current systems.
<unk> heard us move the bar on our system operating factor over the last three years by nearly 10%.
There's a tremendous amount of additional opportunity we see in growing our EBITDA through our existing systems without capital.
And the proof point to that is that we've delivered all our contracts even subject to the day rate. This past year. The second lever that we have on growth are very low capital investment opportunities that surround our our corridor.
Great example of that is the port Neches link.
Asset that we put into service this year on time and on budget that has attracted a tremendous amount of flow in there.
Hansen the value again of our market link system. So we believe we will have.
We have line of sight to a number of those types of capital opportunities that more than underpinned, our 2% to 3%.
Growth, but with very low execution risk the third part of our value proposition, though is that in our outflows of capital we're going to reserve the ability at which ties to your first question around our balance sheet strength the ability to continue to de lever it.
It is critical that we maintain a very strong balance sheet. So it's both so that.
Hopefully that addresses your question.
Yeah. Thanks, it sounds like a lot of our low multiple to build type projects looking forward. So looking forward to hear some more at the analyst day here in a few weeks have a great rest of your money.
Thanks, Brian.
So I think we have time for just one more question. Please our next question comes from John Mccain from Goldman Sachs. Please go ahead.
Hey, good morning, Thanks for the time I wanted to maybe just start on the successful bringing unit six Bruce online kind of faster than scheduled any read through for the rest of it in MCR program and maybe anything that could mean any learnings for potentially moving forward with Bruce site.
Yes.
Yeah.
Yeah, It's Francois I'll start and then I'll ask Angela do to them.
Filling the question just first of all we're very proud of the execution on unit six that included over 100 force Majeure days during Covid. So that asset was brought in ahead of schedule and on plan.
And are very proud of the execution and of course.
We're in a good place also on unit three which is in the early part of its program, but over to Ashley for more detail sure. So in the near term. We certainly are very focused on the continued really strong execution of all six of the major component replacement project.
Where unit six has come in ahead of schedule and on budget certainly gives us more confidence in the project execution for the remaining units. They are largely the same scope of work and so being able to have one fully complete and back in service.
US a lot more insight into planning.
Optimizing the execution on the remaining projects.
With respect to your question around our future new build at that Bruce site.
It is still extremely early days as we've talked about our focus over the near term will be on executing the existing refurbishment program and that's where the capital spend will be focused.
We are supportive of Bruce power, starting initial investigations into what.
Newbuild would look like a Bruce C.
And that's on the back of extremely strong policy support in Ontario, and so we're working closely with the government I'm really just to explore what the what the possibilities might be at this stage and I will remind remind you John and the rest of our listeners as we laid out at our sustainability.
D day at Bruce earlier this year.
Through the combination of price increases as well as.
Bringing incrementally through the end of the decade more units back into service, we're expecting to see a fairly significant growth and the profit before tax from Bruce that is consolidated into our EBITDA.
Alright appreciate that update maybe just one last quick one staying on maybe a later dated projects it looks like Ontario pump storage.
Timing may be 25 versus 24 prior and I think we were looking for kind of regulatory update end of this month, maybe you can just kind of comment on those two.
Thanks for the question, it's actually and so the development of the Ontario, I'm, sorry, which project is continuing its a project that we are excited about again theres very strong policy support for it in Ontario, We also anticipate a.
And it would be a condition of us going ahead, a commercial model.
That would be rate regulated AR, which will provide us with a strong framework going forward. If we do move ahead and you're right. We do anticipate feedback from the government before the end of this year and F. E date would likely not be before some time in.
2025, and a major capex would be even close to that date by the time, we get into any significant construction.
Alright, I appreciate that thank you.
Thanks, John.
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 Wylie. Please go ahead Mr. Riley.
Yes, Thank you and thanks, everyone for participating this morning.
<unk> mentioned, if you have any questions or if we didn't get to your question. Please contact the Investor Relations team are always happy to help.
We very much appreciate your interest in TC energy and we look forward to our next update thanks again.
This concludes today's conference call you may disconnect. Your lines. Thank you for participating and have a pleasant day.
[music].
Okay.
Yeah.
Yeah.
Okay.
Uh huh.
[music].
Okay.
Okay.
Yeah.
Yeah.