Q1 2024 TC Energy Corp Earnings Call
[music].
Thank you for standing by this is the conference operator, welcome to the TC Energy first quarter 2024 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 need assistance during the conference call you May signal, an operator by pressing Star then zero I would now like to turn the conference over to Gavin Wylie Vice President of Investor Relations. Please go ahead.
Thanks, very much and good morning, I'd like to welcome you to TC Energy's 2024 first quarter Conference call. Joining me are French swapped for a president and Chief Executive Officer, Joe Hunter Executive Vice President and Chief Financial Officer, along with other members of our senior leadership team.
French law and Joel will begin today with some comments on our financial results and operational highlights our COO.
Copy of the slide presentation that will accompany their remarks is available on our website under the investors section.
Following their remarks, we will take questions from the investment community. We ask that you limit yourself to two questions and if you're a member of the media. Please contact our media team.
Before first of all begins I'd like to remind you that today's remarks 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 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 presented by other entities.
These measures are used to provide additional information on Tc Energy's operating performance.
And its ability to generate funds to finance its operations a reconciliation of various GAAP and non-GAAP measures is contained in the appendix of this presentation with that I'll turn the call over to Francois.
Yeah.
Thanks, Kevin and good morning, everyone.
We set out with three clearly defined priorities for 2024 that focus on maximizing the value of our assets project execution and enhancing our balance sheet strength and I'm pleased to report that we continue to deliver on all of these commitments.
We saw another quarter of record earnings with comparable EBITDA up 11% compared to the first quarter of last year.
With a relentless focus on safety and operational excellence the company saw high availability and utilization across our asset base, including multiple first quarter all time records.
Our secured capital program continues to progress on plan and we are tracking to cost and schedule with our major projects South East Gateway and the Bruce Power unit three M. C. R.
In March of 2020 for the U S $300 million Gillis access project was placed into service with a build multiple of approximately six times.
This greenfield pipeline system connects gas production is sourced from the Gillis hub to downstream markets in South East Louisiana.
Gillis, along with projects on our N G T L system.
I mean that we've placed approximately $1 billion of projects into service. So far this year largely on budget.
Additionally, $200 million of maintenance capital was placed into service over the quarter.
We continue to execute against our $3 billion asset divestiture program with the recent sale of PNG T. S. Four expected pre tax proceeds of approximately Canadian $1.1 billion, which includes the assumption by the purchaser of U S $250 million of senior notes outstanding.
At P&G T S.
We also continue to progress the proposed spin off of South pole.
As you saw a couple of weeks ago, We released our management information circular and the shareholder vote is scheduled for June 4th.
Finally, we were pleased to announce Sean O'donnell, as our incoming executive Vice President and Chief Financial Officer effective May 15, following Joes decision to pursue another opportunity.
We're grateful for Joel is 26 years with TC energy and the incredible impact. He has made on the company and I'll Reserve a few more thank yous for Joel in my closing remarks.
As for Sean.
He joined TC energy six months ago as part of our succession planning.
And brings 30 years of invaluable energy industry experience, including past roles as CFO.
This paired with his tenure in corporate finance and private equity aligns directly with our clear set of strategic priorities.
In Mexico, we continued to achieve milestones in the construction of South East Gateway.
Total offshore pipe installation is now over 70% complete.
The offshore portion represents about 670 of the total 715 kilometers of pipeline lengths.
Onshore all critical permits for construction have been obtained and we have completed construction on all three landfall sites.
Accordingly, the project continues to track schedule and expected cost of U S $4 $5 billion.
Continued high Utilizations across our integrated natural gas system in the first quarter reflect continued demand growth for natural gas and the markets we serve.
Total N G T L system deliveries in Canada averaged 15.3 Bcf a day with a new daily record high of $17 three Bcf achieved in January.
In the U S. Daily average flows of 30 Bcf were up 5% compared to the first quarter of last year.
Once again, various pipelines achieved record throughput volumes, including in our Columbia gas Columbia Gulf and Great Lakes systems.
Natural gas demand growth is continuing.
And power in the U S as electricity demand growth.
2023 was a record year for power burn across the U S and that strength is continuing into 2024.
Mirroring that our assets continue to support the record demand and we set a first quarter record for deliveries to power generators up two nine Bcf per day up 11% versus the first quarter of 2023.
New growth drivers like data centers will help continue that positive growth momentum.
And Mexico average daily throughput was nearly three points zero Bcf per day up 13% versus the first quarter of last year.
And our power business, our power assets were available to deliver power when it was needed most resulting in an increase to comparable EBITDA of 14% versus the first quarter of last year.
As you all know Bruce power produces 30% of the electricity in Ontario.
And Bruce met continued demand in the first quarter by providing and delivering availability of 92%.
We continue to expect average availability in the low ninety's percent range for 2024, which is a significant and gradual improvement over the last decade or so.
The Bruce power major component component replacement program to extend the asset life for the next 40 years continues to progress on plan.
Unit three is tracking cost and schedule and unit four received the isos approval to begin in early 2025.
Our Alberta Cogeneration fleet also delivered strong performance and reliability in the quarter with overall portfolio availability of 98, 7%.
There continues to be strong demand.
For our transportation service in our liquids business and Keystone is meeting this demand achieving 96% operational reliability in the first quarter.
This operational strengths supported a 28% increase in comparable EBITDA as compared to the first quarter of last year.
Turning to south bow in the proposed spin off of the liquids pipeline business.
Even in the South bow team continue to make meaningful progress towards the south pole business transitioning to a standalone public company.
We are confident we will have a successful launch of an independent south pole in late Q3 or Q4 of this year.
We do not anticipate any material dis synergies related to south pole as the liquids business was operated mostly as a standalone business within the broader Tc energy and we intend to offset any potential dis synergies in the year in which they would have otherwise been incurred.
Further the team plans to develop the black Rod connection project. This project is expected to underwrite a meaningful portion of south pose near term comparable EBITDA growth targets.
We issued our management information circular on April 16th and you may have seen that leading proxy advisor ISS has come out with a supportive recommendation for the transaction.
As described in the circular favorable tax rulings have now been received in both Canada and the U S.
Our 2024 annual and special meeting will be held on June 4th I Hope you take the time to look at the information in the circular and on our website to support your voting decision.
And now I'll turn the call over to Joel.
Thanks, Francois and good morning.
Exceptional operational performance during the first three months of the year delivered 11% year over year growth in comparable EBITDA.
It's Francois mentioned, we saw strong year over year increases across all of our business units, including a 14% increase in power and energy solutions, driven by increased availability and in our liquids business at 28% increase in comparable EBITDA driven by higher Utilizations on both the Keystone and market link systems.
We also delivered a 4% increase in quarterly comparable earnings relative to Q1 of last year.
This largely resulted from increased comparable EBITDA, partially offset by higher net income attributable to noncontrolling interests. Following the Columbia sale in 2023.
And higher interest expense, primarily due to long term debt issuances net of maturities, partially offset by reduced levels of short term borrowings and higher capitalized interest.
We reaffirm our outlook for 2024, which does not take into consideration the proposed liquids pipelines spinoff.
As a reminder, in 2024, we expect comparable EBITDA to be between 11 point to an 11 $5 billion.
This growth is primarily driven by an increase in the NGL system. The full year impact of projects placed into service last year and approximately $7 billion at new projects expected to be placed into service this year.
As a reminder, the $7 billion includes close to gasoline, which is expected to be placed into commercial in service later this year.
At the end of April we placed approximately $1 billion of projects into service, including Keyless access and the Columbia gas of Virginia electrification project.
Comparable earnings per common share is expected to be lower than 2023, largely due to higher net income attributable to noncontrolling interests related to the Columbia sale.
Total net capital expenditures for this year are expected to be approximately eight to $8 $5 billion.
We continue to actively manage our fixed floating interest rate mix, which helps insulate us from rising rates approximate.
Approximately 92% of our debt is fixed with an average term to maturity of approximately 17 years and a pretax weighted average coupon of approximately five 3%.
We are making progress towards our asset divestiture program with the announced sale of PNG T S, which would put us over a third of the way towards our $3 billion target for 2024.
This transaction implies a valuation multiple of approximately 11 times 2023 comparable EBITDA.
We remain committed to achieving our 475 times debt to EBITDA target in 2024, the upper limit to which we will manage to and expect to announce incremental asset sales in the coming months.
Related to the liquid spin off shareholders at TC energy as the distribution record date established for this spinoff will receive one U P. C common share and zero point to sell both common shares in exchange for each T C common share.
Yeah.
As highlighted on this slide dividends are expected to remain whole forming the liquid spinoff. In addition, we expect to have the capital structure in place prior to the spinoff subject to a successful shareholder vote on June 4th.
Anticipated proceeds from the senior and subordinated debt issued at self Bo Lee used to repay approximately $7.9 billion of Tc energy debt and help meet future funding requirements.
Our long standing value proposition sets the foundation for continued operational and financial strength insulating us well from volatility we see in the broader market.
Our stable low risk business model and highly utilized asset portfolio provides stability in our comparable EBITDA and cash flows.
[noise] Tc Energy's Board of Directors has declared a second quarter 2024 dividend of 96 cents per common share, which is equivalent to $3 84 per share on an annual basis. As we look ahead, both Tc energy in south bow are expected to maximize respected value propositions in a manner that will benefit shareholders for years.
To come.
Speaker Change: I've had a great career here at TC energy as you know I'm moving onto a new opportunity, but I'm truly grateful for my time with the company TC energy has been a great place to work and I appreciate everything that had been able to accomplish during my time here.
It's Francois mentioned effective may 15th Sean O'donnell will step into the role of executive Vice President and Chief Financial Officer, and I will remain part of the team and as an executive adviser until my last day on July 1st to support a seamless transition.
TC energy is in good hands with Sean who has tremendous amount of experience in the energy industry and expertise across North America now with that I'll pass the call over to Sean for a few words.
Thanks, Joe and good morning, everyone.
As Ive mentioned to many of our stakeholders over the past several weeks I'm very excited for the opportunity to succeed you as the next CFO of T C.
For our shareholders I want to highlight that I like Joel will be focused on the continued successful execution of the 'twenty 'twenty four strategic priorities that Francois detailed earlier I look forward to connecting in person with as many shareholders as possible over the coming months, but for now I'll turn the call back over to Francois for his closing remarks.
Thanks, Sean.
Happy to share that we once again delivered record results supported by our relentless focus on safety and operational excellence.
Our priorities for this year are very clear first continue to maximizing the value of our assets through safety and operational excellence.
Remaining focused on project execution, delivering our projects on time and on budget, including Southeast Gateway and Bruce Power's unit three M. C. R and third we will continue on our path to achieving and sustaining our $4 75 debt to EBITDA upper limb.
By the end of the year by advancing our divestiture program and continuing to streamline our business.
Through efficiency efforts.
Before I turn it over to the operator, I would like to take a moment to thank Joe for his contributions to TC energy over his 26 years with the company.
Joel you've been a valued member of the TC energy team.
I know you share our passion and commitment to the strategic path, we're on and I look forward to working with you until mid year.
Also on behalf of the entire team.
We wish you the best in your next opportunity.
I'll now turn the call back 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.
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Our first question comes from Ben Pham of BMO. Please go ahead.
Hi, Thanks, good morning.
It may start off on the asset sales you mentioned.
Potential additional asset sales and in the coming months.
Can you talk about then.
Just really anything has changed as well.
Spec to the buyer.
Interest does the federal budget change, perhaps some of the discussions on the M. E N G T on a federal loan.
Guarantee for her first nations.
And then there's the CSC.
Right.
Purchase that you've disclosed is that going to be included in that $3 billion target.
Hi, Ben its Francois thanks, very much for the question things have been progressing very well on all fronts on our divestiture program I can report that and yes. The cfe is a purchase of an equity interest in T. G. And H is included in that number I can report that our Cfe has received all approvals.
<unk> for its investment they have secured the funds and we are in the final throes of negotiating documentation.
And we can expect to receive proceeds in exchange for an approximately 15% interest perhaps as early as next week.
I will remind everyone that this transaction was negotiated at the outset of the South East Gateway sanctioning and consideration provided.
Provided by Cfe includes not only cash, but also assets in kind as well as them agreeing to take on certain risks disproportionately around land acquisition and permitting as well as a disproportionate percentage.
We're focusing on Canada in the nearer term.
The budget does not have any impact on our ability to proceed nor have we seen any impact on prospective valuations. We have a couple of processes that are reasonably well advanced in Canada, and we could expect to announce additional divestitures in the second quarter if.
Progress continues on a positive path that it has on <unk>.
Beyond that we continue to focus on other divestiture opportunities to progress our divestiture plans and deleveraging plans, whether it's in Mexico, where we are in conversations with a number of parties. We're also exploring a fever AE as a potential alternative as.
Well as a number of other assets smaller assets in our portfolio. So we're very confident in the $3 billion number and we look forward to announcing more positive progress over the coming months.
Okay, I guess, that's why I get back in the queue.
You bet.
Our next question comes from Rob Hope of Scotiabank. Please go ahead.
Hi, good morning I.
Robert Hope: Wanted to ask a question on increasing power demand driving increasing gas demand. What you noted in your prepared remarks.
How are you seeing that kind of manifest itself across your system and what opportunities does that provide in both your gas and pipeline gas pipeline and power business and I guess yeah.
It kind of an offset there would be no could we see.
<unk> interest and additional power investments.
On a longer term basis and kind of what does this mean for the Ontario storage project.
Good morning, Rob. This is Stan I will start and then pass it over to annually I want to make sure that you all have a proper appreciation for the really strong growth story, that's going on right now due to the operational excellence that our teams have demonstrated we're seeing record deliveries across all of our jurisdictions.
Canada outflows on the NGL system are up 5% quarter over quarter, including strong deliveries not only to power generators, but also within the oil sands and Mexico. Our flows are up 13% quarter over quarter led by higher volumes on both our <unk> system and the top of the Bombay system and assimilate.
Across the U S. Our throughput was up 5% quarter over quarter with new record deliveries to power generators, leading the way our power generation deliveries were up over 11% quarter over quarter matter of fact over the past six months six of our 13 pipelines in the U S set new record peak day deliveries again, just showing the demand.
For the for the assets that we have and we're well positioned to continue to capture that growth with projects like our Heartland project on the Anr system that we announced last.
Last quarter.
Somebody is probably going to ask about datacenters in particular, so it's probably a good time to bring that up right now, we do see a meaningful load and growth opportunity and increased demand in coming years due to data centers.
When we look and do the math, but we think somewhere between six to eight Bcf of increased gas demand between now and 2030 is more than reasonable, but there are also higher forecast out there that exceed 10 Bcf a day.
Reliability requirements associated with data centers are also driving increased depreciation for the role that natural gas is going to play in supporting those loads as well.
We believe that much of the data center load is likely to materialize behind L. D. CS as opposed to be directly connected to our mainline pipes and they've given that and given our best in class pipeline footprint, which happens to connect to eight of the 10 largest L. D. CS across the U S. It's just a reinforcement of our strategy.
To increase connectivity with L. D CS via bolt permissible construct the ball in corridor expansions with long term take or pay contracts, particularly in datacenter hungry areas like Virginia and Wisconsin.
Notice the disproportionate amount of the projects that we announced over the past couple of quarters or in those two states and that's why.
Thanks, Dan.
I'll speak to the power part of your question, Rob <unk>, our power and energy installation strategy really remains for the near term to focus our investment in nuclear and pumped hydro we have continued great opportunities through our investment in Bruce power to deploy capital dollars Nuc.
Layer is base load generation that well continue to support the grid.
And then our Ontario pump storage project, which I think you spoke to specifically and we continue to have really great support from municipalities and local communities. We received just in the last couple of weeks another city municipal council vote in support of the project.
And we also feel really strongly along with our partners Celgene, Egypt by nation that the project will offer Ontario.
Really good socioeconomic benefits a $6 8 billion to the economy in present value terms over the life of that project, 90% of which will benefit our Ontario directly and much of that is in rural communities.
That said as we continue to progress the project and we are very mindful that we will not continue to invest capital dollars without having a cost recovery Inc. Commercial framework.
In place, we're very optimistic we continue to work with the province, and but that is sort of what our near term focus is on securing that agreement.
Yeah.
I appreciate that and then maybe as a follow up and more broadly you know through the years. We've seen you know Tc energy kind of shift capital between its power and pipeline business.
Recognize right now on the power side and focuses on the pump storage as well as nuclear but.
In a world, where North America short power in a number of years.
Gas fired generation can give you good risk adjusted returns and good contractual backlogs you know could we see you kind of reinvigorate our kind of your development pipeline on that side of the business.
But for right now we really are focused in the near term on nuclear and pumped hydro we're committed to adhering to our $6 billion to $7 billion capital spend mm commitment.
It's not to say that we went in Opportunistically look at them those are opportunities given exactly what you've described relative to power demand, but it would have to sit within that six to six to 7 billion dollar limit.
And what I would add Rob. It's Francois is that you know we've had a couple of our assets achieve our reach contract expiry and we've been able to renew and extend those contracts, which obviously protects the terminal value of our businesses are the one example, I would point you to is in New Brunswick are co. Gen. We were able to extend that contract.
And.
We've got other assets such as Big Encore, where we are in very positive conversations with potential.
Customers about extending and entering into new contracts just to continue to perpetuate those cash flows. So the dynamic around natural gas demand and power demand is very positive that's exactly at the intersection of the strategy for the New T. C. We are a gas and power.
We're a company focusing on growing our gas franchises in all three countries as well as growing our investment in.
Primarily emission less power going forward, but also extending the life of our existing natural gas power generation assets.
Alright, Thank you and.
Joel all the best and they are a new role and Sean congratulations as well.
Thank you.
Our next question comes from Jeremy Tonet of Jpmorgan. Please go ahead.
Hi, good morning.
Good morning, Jeremy.
Joe want to wish you know best wishes going forward as well Sean congratulations.
And just wanted to I guess start off it seems like the business continues to perform pretty well and.
Excuse me expectations again here and just wondering I guess, how you see things you know I guess performing versus expect analyst day expectations at that point and you know how you think things unfold going forward.
[noise].
I appreciate the question, Jeremy and the acknowledgment of the strong performance we've delivered them.
Speaker Change: This is why we have a very short set of priorities in 2024, as we did in 2023 and it begins and ends with strong execution.
Speaker Change: We are laser focused on improving the return on invested capital on our existing assets and then delivering on our new projects on time and on budget and essentially delivering the business cases that we brought forward a two.
To our to our board of directors and we are performing.
Speaker Change: Performing exactly on that plan are we reaffirmed our guidance for for 'twenty 'twenty four mm prior to them.
Giving effect to the spin transaction because of the timing could move around plus or minus a month at $11 to $11 5 billion of EBITDA, we remain confident and reaffirm that guidance.
And you know there are a lot of things that are contribute to where you end up in that band or outside of that band.
Asset availability is a critical driver, it's a great opportunity to create upside with no capital you've seen through laser focus of our operating groups.
Huge focus on increasing the availability of our assets, we've talked about that in our prepared remarks, and a fair amount of detail, we see that as low hanging fruit to continue to perform or even beat our expectations for now we're going to.
Under promise and over deliver and and reiterate our guidance as is for the remainder of the year.
Got it understood. Thank you for that and there seems to be some debate in the marketplace with regard to our credit rating agencies in S&P were to downgrade TRP. Just wondering if you could walk us through what type of impact that would have on.
The company hybrids et cetera.
I'll provide a couple of overall comments and then pass it onto Sean who as our SVP of.
Capital markets and planning has been managing the dialogue with the rating agencies and all I will say first off is that we are performing exactly to the plan. We provided all rating agencies in our review last summer.
In advance of the announced intention to spin our business and we continue to execute against that plan, but over to you Shaun.
Yeah. Thanks, Fred Smith, Jeremy good to be connected I, just want to reiterate as a new voice on the phone like the the commitment to these deleveraging plans remain exactly intact, I'm picking up where Joel left off and and as it relates to what the agencies are doing.
Baca Francoise comment, we engage with them last year significantly across our advisory services and developing these plan. They know they know very well all of the moving parts and we remain.
In regular contact with each of the agencies quarterly we've been on the phone and all of this week and as interim updates whenever they ask for it for each of our kind of ongoing initiatives. So.
While I.
I don't believe any company can or should predict you know what any one agency may or may not do your specific question about a particular notch downgrade we've seen some of our peers you know get downgraded the last couple of weeks in the bond market didn't move but for a basis point no market reaction whatsoever, and I think you have such disparate.
Kind of views across the agencies.
Investors are just taking kind of their own point of view on it.
And as it relates to what would be the pricing impact across our complex.
The J S ends are pretty far out right. We've got a call date, but our maturity stack on the jazz and doesn't really arrive until 2027th we've got a lot of time and importantly, our deleveraging plan that sits with all the agencies shows this for about 75 very stable for the long term. So we feel really good about it.
And virtually no no impact or anything like that happen.
Got it that's very helpful. Thank you for that.
Our next question comes from Linda <unk> of TD Cowen. Please go ahead.
Thank you I have a two pronged question your Alberta natural gas storage.
The business appears to have outperformed significantly in the quarter.
Just help us understand maybe a breakdown between that and your lower business development costs to just get a sense of the magnitude of the outperformance and is there something one time in nature or can there be some new emerging opportunities given some of the shifts in market dynamics.
Hi, Linda its Anthony Thanks for the question so the outperformance in the gas storage business in Q1.
<unk> was what drove the results there and the impact of the business smelting cost plays a much less significant and the operational outperformance was really a result of us being able to capitalize on the severe weather events that happened in January so the storage.
Business benefits from the price volatility in the market and we were able to deliver those results.
It isn't something that you would expect to see a quarter over quarter because it was related to the severe weather event, but we have demonstrated an ability to take advantage of those types of events in the past and to the extent they were to happen in the future. We would expect the same thing.
Thank you Anthony and just as a follow up recognizing that.
Speaker Change: This might be somewhat opportunistic and provide a valuable service during it's an extreme times for the industry.
How are you seeing the economics potentially improving for natural gas storage is there any contemplation of brownfield or potentially a greenfield storage anywhere in your network and can you comment on how that might become an increasing proportion of your natural gas.
Related infrastructure.
Well, maybe there's also a question for Stephen I don't know.
Speaker Change: Yeah.
Yeah, I can start and then I'll pass it over to Stan I think with respect to the unregulated gas storage business that we have are in Canada and our focus is really just to continue to maximize the value of the exceptional assets that we have them as part of that business.
And maybe you want to comment further good morning, Linda as you know, we're one of the largest storage owner operators in North America, and do you see a lot of value in storage going forward in the aggregate. We operate about 650 Bcf of capacity with about 530 that are here in the U S with respect to our storage position in the U S. A high demand for it continues we're in our <unk>.
<unk> consecutive year of having 100% of our storage capacity fully contracted for our storage is heavily located in our market area and over 80% of the storage is subscribed by our LDC customers, who rely on it as a source of their peak day needs.
Maybe a bit in contrast, much of the discussion going on today with respect to new storage is pertaining to locales in the golf coast in response to the Mad volatility around LNG exports and there's meaningful differences between those types of merchant storage activities versus our more integrated storage approach with our <unk>.
Storage being integrated with our LDC customers that come with long term contracts that are take or pay in nature and have synergies back to the pipeline. So from my perspective, when I look at the opportunities going forward I don't see us chasing these mercury opportunities that do not have synergies are not integrated with our assets, but I do see us building more storage.
That complements our best in class footprint through either enhancements in drilling new wells to our existing storage footprint or in some cases, constructing new storage or even LNG, peaking facilities as we have operated historically and the eastern part of our system.
Thank you.
Our next question comes from <unk> Satish of Wells Fargo. Please go ahead.
Thanks, Good morning.
I could switch to south both so you talked about initial leverage ratio. There are five times has anything changed with respect to your thinking of the capital structure there.
Light of the higher interest rate environment, and then secondly can you comment on any discussions you you mentioned that you're talking to the rating agencies frequently.
Discussions with them as it relates to the credit worthiness of south bow and and what leverage profile would be consistent with our investment grade credit rating.
Yeah.
Excuse me, sorry, I pronounced that Bevan here.
So first off I'll address your last question first I guess is we we just recently went back to the credit agencies here just a few weeks ago with my CFO Van Dafoe.
Outlining the update of our plan you've seen the outperformance this past quarter.
The business as well as bringing forward the Blackrock project, which is credit accretive and so very solid ground with respect to our leverage profile.
Of of South Boe with the agencies coming out being investment grade a commitment that we've made in the information circular that that went out.
With respect to.
You know our capital allocation priorities and your comment around the interest rates you know our capital allocation priorities are first our deleveraging.
The way, we can because we believe that our deleveraging is accretive to the equity investor.
The way, we can achieve that in on an accelerated basis compared to what we highlighted at Investor day is allocating capital to Blackrock.
That project is a very short cycle.
Speaker Change: Project will be on in early 2026 cash flows can be created off that asset at the low end of our EBITDA build multiple range at the at the six times level that allows us to really accelerate our de levering in the face of that interest rate.
Environment that you point out our second priority is in capital allocation as organic growth in that build multiple range with black Rod we achieve just about 60% of our EBITDA growth CAGR that we highlighted at Investor day. So that's strong and then with discretionary capital we want to look at the bottom.
One of them have the opportunity to do share buybacks or over the long term increase the dividend and as as you may have pointed out to you know starting with Delevering deleveraging as is critical given the interest rate environment.
But also getting our payout ratios.
Most are in class with our peers is another priority.
<unk>, it's Joel here I'll just add on a few comments here, we've been working closely with <unk> team as well.
With the capital structure, it will be across the term spectrum everywhere anywhere from three years out to 30 plus years, including junior subordinated notes that will comprise but $1 $5 billion of the capital structure. So nothing has changed from where we were last summer and more importantly in the interest rates, we looked at where we're at today relative to where we were last summer.
Actually the rates are in slightly so again, despite the rise in rates over the last three or four months on an all in basis. They still remain very favorable to where we were when we first stepped budgeted for this last summer.
Got it no that's helpful.
Go back to the AI theme 'cause it because it's an interesting one so there's only as you know two pipelines that flow right through the heart of our data Center Valley in Northern Virginia, Colombia is one of them.
I know you touched on it but can you can you talk about any discussions you've had with utilities that are coming to you requesting or anticipating more gas in preparation for more load growth and then if so how easy do you think it'll be to accommodate this additional demand in terms of expanding your system, Let's say you pick up one or one to two.
Two bcf per day of that plus 6% to seven Bcf of incremental gas demand that you quoted.
How much can you handle with compression versus newbuild.
Yes. This is Stan I appreciate the question and again just reiterate the overall opportunity is probably somewhere around six Bcf a day by 2030. When you look at places like Virginia. In particular, we do have one data center that we are already serving that is actually tied into our mainline facilities, but again I think that that's a bit of an anomaly and we're gonna see additional data.
Set of growth either directly contracting with power generation loads are behind the LDC. So our strategy is going to be continue to increase our connectivity with the LDC loads. If you look at some of the annual plans at the L. D. CS are filing youre seeing that they are they are representing that strong growth going forward in terms of assets that'll take it's probably going to take more than compression it's going to be.
Accommodation of pipe and compression and back from a liquid supply source. So we continue to be bullish on Appalachian production as we said in the past that production is constrained only by takeaway path and how do we think that when you look at our systems and the path that we can deliver from from Teco pool over to these data centers in places like Virginia in particular uniquely.
Positions us amongst our peers.
Got it thank you.
Okay.
Our next question comes from Theresa Chen of Barclays. Please go ahead.
Good morning. Thank you for taking my question and I wanted to follow up on this theme and just go back to that six D. C number.
Theresa Chen: Delighted earlier, how did you come to that number what are the.
Assumptions driving that as it relates to your system in terms of the pushed out that's a follow up to <unk> question.
Kind of Capex should we think about.
Paul.
Yeah with respect to the six Bcf a day number again I look at that is not anything that's proprietary to us, but a kind of a mid point of the various.
Analysts summaries that were done by parties like Woodmac, and EIA and others and again, we're seeing estimates as high as 10 Bcf, which I think are a little bit aggressive given the fact that there's likely to be some supply chain challenges with the associated build out and it's going to take a little bit longer.
I don't have specifics for you with respect to capital investments I'm again to I think this is going to play out over the next several years through the end of the decade I can tell you that we are in discussions with with various entities to get these types of loads attached to our system, but it's going to play out what I'd add to that Theresa Francois is oh.
While we remain very focused on living within our means and that the lower end of that $6 billion to $7 billion range. What this means is that you know after giving effect to our maintenance capital of roughly 2 billion a year and we've got about $1 billion a year committed to Bruce.
We've got $3 billion, a year approximately of discretionary opportunities to deploy capital and that long term trend presents us with a very high degree of confidence of being able to attract very high return.
Tractive investment opportunities and continue to be able to deliver a very healthy spread between earned returns on projects and our cost of capital and maybe one last thing I would add three say is even though we're going to compete for and win our fair share of the datacenter load. There's another way to serve it indirectly which is by getting increased deliveries to the <unk>.
Power generators and do keep in mind that there's about 10 gigawatts of coal fired power generating facilities that are scheduled to retire here by the end of 2030 that are within 15 miles of our assets. So I think we're well positioned to capture that part as well.
Thank you.
Our next question comes from Robert Kwan of RBC capital markets. Please go ahead.
Hey, good morning, if I can start with southeast gateway either as of yet.
Some updates on that but I'm just wondering if you can compare.
You are versus started chaos just in terms of some of the productivity and then you can also just comment on some of the major remaining critical path items are basically what keeps you up at night on the rest of the project.
Hey, Robert This is Stan thanks for the question we're in a really good place with respect to the project right now as we noted earlier, 70% of the offshore.
Pipeline is completed which includes 100% of the northern segment, how we recently brought the vessel into port for some unscheduled maintenance its going to be going back out to completely to be about 189 kilometers of the southern portion of the deepwater pipe lay her shortly we're also progressing on the nearshore work as well as the facilities work, which is adding.
Compressor stations at three Landfalls and the fact that we have all three of our drilling completed is a big deal for the team. So we're we're excited with respect to where the project is right now in terms of the challenges for the future no really it boils down to whether risk and maintaining the productivity that we've seen.
And both with the vessel offshore and the work that the team is doing onshore when I think back to some of the lessons learned against sort of tell us that we're gonna be implementing here is that we're going to do the subsea tie ins are below the water line rather than on the water line and that takes a lot of this weather risk out of place. So that the team is well engaged we're in a good position and I'm excited.
That were remaining on track both with respect to your schedule and cost for the project.
That's great. Thank you.
If I can just finish on the asset sale program, you've noted you've got multiple processes ongoing.
Theresa Chen: Just.
Theresa Chen: Due to the butterfly divestiture LMS.
So spin does that cause you to focus a little bit more on the processes that you can close quickly and or are.
Are you thinking about trying to monetize it a little bit more than 3 billion just to take out or derisk.
The 2025 program.
Thanks.
Rob It's a it's francois and I appreciate the question.
Based on the timelines, we have on our various processes, we see us being able to close a sufficient.
Amount of additional transactions prior to the spin such that the 10%.
Limit that's included in our D. C. R. A order if you will.
<unk> is not going to impair our ability to complete our deleveraging program, whether it's all in 2024 or some of it leaks into 2025, so we're very comfortable with our ability to establish that achieve that.
Below our upper limit of $4 75 in 2024, and then remain there as we go forward and I will also point out that not only is 'twenty 'twenty four and anomaly with.
US retaining a portion of the liquids EBITDA for part of the year. So it was 2025, we're putting $9 billion of assets into service in 2025, but only have a partial year benefit there starting in 'twenty six we're going to have the full year benefit for all of those assets and that in itself is going to continue to accelerate.
Our deleveraging below the $4 75 upper limit.
That's great. Thank you very much Joe.
All the best this year.
Thanks Robert.
Our next question comes from Robert <unk> of CIBC capital markets. Please go ahead.
Robert Hope: Thank you and good morning, everybody and congratulations on the strong operating results I wanted to go back to the capital structure questions starting with self Boe.
You know right now Tc energy as the benefit of our enviable.
Maturity profile I'm wondering what you see as the average maturity profile for softball, what's your what's your vision for that.
Yeah, Rob we'll access the full stack, but on average you should use 10 years as a as a a good rough guideline of the maturity profile that will be seeking.
But we will be putting from threes fives tens thirties, all all in the stock as we go out.
Okay. That's helpful. And then I have sort of the same question for TC energy basically went when that couple stuck because stood up at south pole and.
Seven 9 billion makes its way back to Tc energy.
It sounds like you're very determined to stay at the 4.75 leverage or below.
But is there any do you have any thoughts on the term.
Can you afford to shorten the term of.
Well you know 17 18 years as you redeemed debt two banners your interest rate exposure there.
I'll start here and then Sean if you want to chime in a great question Rob a.
A couple of reminders here the weighted average term of our debt is 17 years.
Over 90% of our debt is fixed rate. So when you think about seven $9 billion coming back.
Sean: T C. As it relates to self bell part of those funds will be used to just fund our capital program for this year part of the funds will be used to reduce our some of our long term debt.
Going forward.
So when we look at the the money coming back here again part of it will be for the funding of this year's capital program part will be to reduce our debt.
But should have a negligible impact on our weighted average term to maturity of our debt.
Okay, Great last one for me.
I wanted to go back to the and <unk> potential sale there.
My understanding was that the.
You can tell there is practically limited by the.
Due to this loan guarantee programs and I just wonder.
Whether or not that's changed with the would.
Sean: With the federal budget announcements for more loan guarantees.
Robert It's Francois to the extent, we can avail ourselves of indigenous loan guarantees beyond the one that the AI Oc is generously providing we would certainly consider that but I would highlight that we have a number of processes competing with one another at this time and I.
Given the commercial sensitivities of our discussions I won't comment further.
Okay. That's fair thank you.
Yeah.
Sean: [noise].
Our next question comes from Keith Stanley of Wolfe Research. Please go ahead.
Oh, hi, good morning.
<unk> results, another really strong quarter, just curious how.
How much of this do you view as sustainable for the as a run rate and how much is some of this spread oriented upside on Keystone, that's a little harder to predict in the future.
Keith at seven a M.
Yeah.
First first thing is operational excellence, we achieved 96% of system operating factor in the first quarter, having our systems available to capture the arbs you know our strategic franchise connecting.
You know northern Alberta down to the Gulf Coast are making that corridor available can attract can attract barrels and having a system operating factor that high allows us to attract more barrels. So the first our first quarter, we we had.
Outstanding results, both on Keystone, but also on market link, where we were able to add some additional contracts. This year so year over year on market link we've strengthened our contract profile on market link, adding around 200000 barrels. So when you think about our system and our corridor just strengthening of that franchise.
Is just attracting barrels because that's where the barrels want to go as the Gulf Coast, we want to temper our outlook, though we have we do have a you know T M X line fill coming.
Starting right now and so we already have seen some narrowing of that are on the Keystone system, but I want to remind everyone that you know our Keystone contracts are effectively night are 94% contracted with an eight plus year term. So only 6% of that volume on Keystone is subject to <unk>.
Bought or variable tolls, but you know.
Our ability to continue to move spot barrels on our system is what we anticipate but I don't anticipate us being as strong as the first quarter.
That's helpful.
Second question, just a follow up on South East Gateway.
It sounds like its going very well.
It did come on early in 2025.
Would you expect to start collecting the contracts fee early as well or is that not necessarily the case I'm just curious how the that would work under the contract. If you are early.
Yes. This is stan under the contractual terms with the Cfe our counterparty they will pay us upon in service state in summer of 2025 and not necessarily earlier.
Thank you.
Our next question comes from John Mackay of Goldman Sachs. Please go ahead.
Hey, good morning, Thanks for the time I wanted to circle on just some of the leverage comments around 25, certainly understand the amount of EBITDA coming online mid year.
But I guess are you guys still targeting necessarily hitting 475.
By the end of 'twenty, five as well and if so you know last call you talked about needing some incremental EBITDAR, maybe some incremental asset sales just how we should frame that up thanks.
The short answer John is yes.
With respect to <unk>.
You know feeling any gap the gap because of the partial year in 2025 is about point too.
There are three sources of deleveraging that can fill that gap. The first is outperformance from an EBITDA perspective you.
You've seen us here in the first quarter deliver results that were above plan that's come from excellence in operations, our focus initiatives, where we're reducing cost.
<unk> has provided a nice tailwind for us here in the first quarter.
Secondly to the extent, we're able to deliver on our projects below plan that will also.
Have a positive impact on our credit.
Credit metrics, and then if and only if the gap is not filled by the first two we would consider additional asset sales to remain below that $4 75, and we're going to let the year play out a little bit before we make that kind of decision.
Because again I think we're performing very well right now and we see line of sight to being able to address that gap from all three of those different levers.
Alright.
I appreciate that maybe.
Just one more for me on the $6 7 billion of kind of out of your capital that you are committing to and more recently our language has kind of been holding felt lower and I guess just how much of that if we're looking forward. A couple of years is already spoken for existing projects and then how much would be in there for some of these incremental opportunities.
Sean: Data centers etcetera that you could still add to the backlog without going above that.
Oh.
I appreciate the question look or.
Our bias to the lower end of that 6% to seven is really important to us and we value the option value of.
Performing to plan.
So if we stayed at the lower end of the six to seven in terms of the planned capital. If we performed to plan on time and on budget that gives us up to an incremental $1 billion every year to either accelerate debt repayment or eventually perhaps even undertake some share buybacks.
One of the beauties of our business is we have very predictable line of sight to allocating our capital in the future I can tell you that in terms of our internal plans.
I have visibility to where the capital is going to go down to specific projects with specific returns virtually until the end of the decade, that's the beauty of the predictability of our business we.
We do have an opportunity to add incremental projects at attractive returns going.
Going forward with some of the positive dynamics, we're seeing in data centers and other demand growth.
But that's more middle of the decade and beyond I will point out that it took us a couple of years to respond to the Wisconsin request.
To harden the infrastructure from extreme cold that came from winter storm Yuri.
And so the data center and other electricity and natural gas demand increases we are seeing across the board I'm going to take a couple of years to materialize. So we do see an opportunity for us.
To crystallize some of those but more in 'twenty six 'twenty seven and beyond.
Thanks, very much for the time.
Right.
Our next question comes from Patrick Kenny of National Bank Financial. Please go ahead.
Thank you and good morning, everybody I'm just on coastal gas link can you remind us the scope of work to be done to support Cedar LNG.
And what sort of EBITDA build multiple it might be able to achieve there.
And then any thoughts on any work that might be needed to to prepare for a potential phase two for.
From LNG, Canada, or perhaps any other floating LNG projects that might come down the road into next year and beyond.
Thanks, Patrick it's Francois I'll take this one look on on Cedar.
First of all we're having a very.
Our close relationship with the highest one nation were.
I'm very excited and very happy for them to be.
Positive progress on the project, it's going to create.
Wealth for the nation and advance their socioeconomic goals.
This is a project that we are.
<unk> committed to proceeding with.
Sean: We are in the process of advancing our development.
Of the project cost and execution plan. So we're not at this time able to share a build multiple but I will tell you that.
The allocation of risk between parties commercially is considerably different from what we experienced on phase one.
We're very comfortable with the quality of our estimate and the allocation of risk between parties.
Such that if we do allocate our capital and it would be modest capital from our perspective, given that we own 35% of C. G. L. A and there will be project financing to.
To fund a significant.
<unk> component of the project cost, we're very comfortable in our ability to fit that equity capital within our $6 billion plan.
Okay got it thanks for that and then.
Maybe just back to your asset sale process.
Just in light of the recent rule changes here announced to the Alberta power market I know, it's not a huge part of the portfolio, but any thoughts around how.
How you think your gas fired power assets are positioned to perform once these new rules take effect.
And then B you just your overall desire to remain a key participant in the Alberta power market going forward just in light of these changes.
Thanks, very much it's Anthony and I'll take that question so with.
With respect to the changes to the Alberta electricity market that has been announced we do not anticipate any direct impact to our co. Gen fleet in Alberta are it could be that as a result of the changes there are some indirect impact to the longer term outlook for <unk>.
Our prices are but we have already considered this in our outlook and so don't anticipate any material changes there with respect to the overall strategy and again, our focus is really on maximizing the value of the co. Gen assets that we have in Alberta, which were.
Really comes down to ensuring really good operations strong operational excellence will lead to maximum availability, particularly during peak pricing.
Okay, great. Thank you.
Thanks, Patrick.
Okay.
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.
Thank you and thanks, everyone for participating this morning, if we didn't get to your question. If you have any additional questions. Obviously, the investor Relations team is always at your disposal and happy to help out where we can send us a note and we'll get back to you.
Once again, thank you for your interest in TC energy and we look forward to our next update thank you.
This spring.
To close today's conference call you may disconnect your lines.
Thank you for participating and have a pleasant day.
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