TC Energy Q1 2023 Earnings Call Transcript

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Provided by Quartr
April 28, 2023

Key Takeaways

  • Q1 2023 comparable EBITDA rose 16% year-over-year and comparable EPS climbed 8%, underpinning management’s reaffirmed full-year outlook of 5–7% EBITDA growth over 2022.
  • TC Energy placed US$1.4 billion of projects into service in Q1 and remains on track to commission US$6 billion of assets in 2023, with Coastal GasLink 87% complete and Southeast Gateway on schedule for mid-2025 in-service.
  • Post-2024 capital discipline is a priority, with annual sanctioned capex capped at US$7 billion (striving for US$6 billion) to support accelerated deleveraging and potential share buybacks.
  • The company has launched a >US$5 billion asset divestiture program this year to reduce leverage, targeting completion of selected non-core holdings while preserving its high-quality cash-flow mix.
  • Operational resilience remains strong, highlighted by record LNG deliveries, >95% system utilization and availability (including 95% availability at Bruce Power), alongside a commitment to enhanced pipeline integrity following the Keystone Milepost 14 incident.
AI Generated. May Contain Errors.
Earnings Conference Call
TC Energy Q1 2023
00:00 / 00:00

There are 17 speakers on the call.

Operator

Welcome to the TC Energy First 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 will be an opportunity to ask I would now like to turn the conference over to Gavin Wiley, Vice President, Investor Relations. Please go ahead.

Speaker 1

Yes. Thanks very

Speaker 2

much, and good morning, everyone. I'd like to welcome you to TC Energy's 2023 First Quarter Conference Call. Joining me are Francois Poirier, President and Chief Executive Officer Joel Hunter, Chief Financial Officer, along with other members of our senior leadership team. Francois and Joel will begin today with some comments on our financial and operational results. A copy of the slide presentation that will accompany their results is available on our website under the Investors section.

Speaker 2

Following the remarks, we'll take questions from the investment community. We ask Before Francois begins, I'll remind you that remarks today will include forward looking 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 TCE 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 appendix of the presentation. With that, I'll turn the call over to Francois.

Speaker 1

Good morning, everyone. I'm pleased to report that our strong financial performance in 2022 has continued into the Q1 of 2023. High utilization and availability across our system have enabled us to generate exceptional results in the Q1. This is a testament to our people, the continued strong demand for our critical energy assets and the resiliency of our low risk business. For the remainder of 2023, our priorities are clear.

Speaker 1

1st, Executing on our major projects, an industry leading high quality secured capital program. 2nd, Accelerating our deleveraging targets by advancing our $5 plus 1,000,000,000 asset divestiture program, which we expect to complete throughout the year and third, safely and reliably operating our assets that provide essential energy services across North America. We firmly believe that achieving these priorities will unlock value and maximize shareholder returns. And based on our strong start to 2023, we reaffirm our 2023 comparable EBITDA outlook of 5% to 7% higher then in 2022. Underpinned by our focus on strong operational performance, 1st quarter results Had comparable EBITDA up 16% from the same period last year, while comparable earnings per share rose by 8% year over year.

Speaker 1

During the quarter, we placed a total of $1,400,000,000 of projects in service, and we remain on track to place $6,000,000,000 of assets in service during 2023. In Canada Gas, we brought $1,100,000,000 of projects We also placed the Port Neches Link pipeline into service under budget, extending our Keystone system to include last mile connectivity to the largest refinery in North America. In our U. S. Natural gas business, 2022 was a record year in terms of compressor reliability across our fleet.

Speaker 1

And so far in 2023, We are on track to meet or even exceed that performance. This year, We've set a multiple of all time records for deliveries to LNG export facilities, reinforcing the criticality of our assets. And in Power and Energy Solutions, Bruce Power delivered exceptional availability of 95%, And we expect 2023 to average in the low 90s. Unit 6 MCR is proceeding Execution of our major projects is our central priority for 2023. I'm pleased to share that Coastal GasLink is continuing along our revised cost and schedule and progressed through the winter on plan.

Speaker 1

We accomplished several major milestones with the overall project now 87% complete And approximately 5 seventy of the 6 70 kilometers of pipeline has been backfilled and restoration activities are underway in many areas. Commissioning work on the Wild Lake compressor station has begun and natural gas has been introduced as part of the transition of the facility to operations. More than 85% of all classified water crossings are now complete, and are now installing the final pipe through this critical path section. We continue to target mechanical completion by the end of the year. Our second offshore project in Mexico, the Southeast Gateway Pipeline, is also proceeding according to cost and schedule.

Speaker 1

We've achieved our first milestones. With the acquisition of land for compressor stations and offshore landfalls, We've obtained key federal environmental authorizations and local permits for the project. Critical long lead items, including the offshore vessel, have been secured, and we've begun receiving materials. We anticipate commencing onshore construction for our compressor stations this summer. In fact, civil work has already begun, and our offshore pipe installation will commence toward the end of 2023.

Speaker 1

As a reminder, approximately 70% of the total project costs are under fixed price contracts, Providing greater certainty around cost and schedule, and we continue to target completion by mid-twenty 25. Following the Milepost 14 incident on the Keystone system in December, We've been diligently working to restore the area to its original state. We're pleased to report that we've recovered Over 98% of the release volume. A big thank you for the continued support from the Washington County community, And we are dedicated to ensuring the affected area is fully restored. We've received the independent third party root cause analysis.

Speaker 1

And with these findings, we are committed to implementing a comprehensive plan to enhance our pipeline integrity program and overall safety performance. Now looking to the future. Our North American footprint means We have access to a diverse set of high quality growth opportunities and this is a high grade problem to have. But we must consider both financial and human capacity when evaluating incremental projects. We recognize we are in a period of increased development spend.

Speaker 1

However, post 2024, We are committing to limiting annual sanctioned capital expenditures to $7,000,000,000 or less. In fact, we will strive to manage annual capital spending to approximately $6,000,000,000 providing the flexibility to further reduce leverage or buyback common shares. When sanctioning new projects, A key consideration will be the timing of the capital spend and it must fit within our annual capital expenditure parameters and deleveraging targets. We've also enhanced our governance practices and placed higher standards around Sanctioning large or complex projects that includes the requirement for a Class III estimate as well as an independent third party assessment as was the case with the Southeast Gateway. As always, we'll continue adhering to our long established Risk return preferences.

Speaker 1

I'll highlight that 98% of our secured capital program is underpinned by long term take or pay contracts or rate regulation, where we take no commodity price or volumetric risk. The resiliency of our business and capital allocation strategy is supported by a long term view on energy fundamentals. Natural gas will continue to play a pivotal role in North America's energy future, and that aligns well with our current Portfolio as well as our sanctioned projects. Lower carbon energy solutions will gradually increase in market share, And we will intentionally migrate our portfolio composition, but gradually over time and with an emphasis on building firm capacity in areas such as nuclear, pump storage, hydrogen And Carbon Transportation and Sequestration. Renewable energy will play a complementary role in our decarbonizing of our own assets, And we can also extend that service and product to our customers.

Speaker 1

However, the Pace at which we allocate capital to these areas will ultimately be driven by their affordability, Thanks, and I'll now turn the time over to Joel.

Speaker 3

Thanks, Francois. Building on the record results we achieved in 2022, we set a new quarterly record during Q1 2023 It reflects high utilization, availability and continued operational performance across our asset base. 1st quarter 2023 comparable EBITDA was up 16% year over year, with comparable earnings growth of 12% and 8% year over year increase in comparable earnings per share. We continue to demonstrate the certainty and stability of our cash flow growth that reflects our assets being over 95% rate regulated or underpinned by long term contracts. Our strong performance during the quarter was driven by a combination of the Our rate regulated Canadian Natural Gas Pipelines saw a year over year increase in net income of 11%, primarily driven by growth in the NGTL system average investment base.

Speaker 3

Average NGTL system deliveries rose year over year, reaching 14,500,000,000 cubic feet per day. 14% growth in our U. S. Natural gas pipelines comparable EBITDA was largely due to higher earnings from ANR following the FERC approved rate case settlement as well as contributions from growth projects placed in service. Throughput for the quarter averaged 28,500,000,000 cubic feet per day, with several of our assets performing at near record levels when demand was at the highest.

Speaker 3

In Mexico, comparable EBITDA increased 16% year over year, reflecting the north section of the Villa de Reyes pipeline In the East section of the Tula pipeline, they were placed into commercial service last year. Year to date, The operational reliability of the Keystone system has been more than 95%, supporting the safe and reliable delivery of all contracted volumes for our customers. Power and Energy Solutions generated outstanding results with a 79% increase in comparable EBITDA year over year. In February, our Alberta cogeneration power fleet reached 100% peak price availability for the first time in company history, While pricing remains strong, averaging $142 per megawatt hour, Bruce Power achieved 95% availability during the quarter With fewer planned outage days and higher contract pricing relative to the Q1 2022. We are reaffirming our expected 2023 comparable EBITDA growth of 5% to 7% compared to 2022.

Speaker 3

We also expect comparable earnings per common share to be modestly higher. We are confident in this outlook despite the environment of rising interest rates and inflation. And as a reminder, any fluctuations in these variables and other factors could impact our 2023 outlook, We will look to revise throughout the year if necessary. Global markets have been experiencing heightened volatility and I want to take a moment to discuss Confidence I have in our outlook and ability to meet our financing requirements. The chart on the left highlights However, we are beginning to see 10 year government bond yields moderate from their recent highs.

Speaker 3

We continue to demonstrate cost competitive access to capital markets As evidenced during Q1, when we executed over $6,500,000,000 of new issuance across a variety of maturities and geographies. The fixed rate debt tranches of these issuances have a weighted average cost of 5.6%. We have a manageable debt maturity profile with a weighted average maturity of approximately 18 years and average pre tax coupon of approximately 5%. Roughly 15% of our debt portfolio is exposed to floating interest rates. We have programs in place to actively manage our exposures.

Speaker 3

Now turning to our funding program. A key priority for us is capital discipline. Without sacrificing operational safety or reliability, Beyond 2024, we will manage our annual sanctioned capital spending to $7,000,000,000 or less, inclusive of maintenance capital. As Francois mentioned, we will strive to manage annual capital spending to approximately $6,000,000,000 This enhances our financial strength while providing optionality to further deleverage or buy back shares. I'll note that the sources and uses outlined on this chart Do not include the impact of potential asset divestitures that are expected to be realized through 2023.

Speaker 3

You can expect our incremental funding requirements to be reduced as our asset divestiture program progresses, allowing us to further accelerate our deleveraging target. With respect to the dividends declared on February 13, The participation rate in our dividend reinvestment plan was 38%, resulting in approximately $360,000,000 Reinvested in common equity under the program. The discounted dividend reinvestment plan is expected to be in place 1st, TC's Energy Board of Directors has declared a Q2 2023 dividend of $0.93 per common share, which is equivalent to $3.72 per share on an annual basis. 2nd, we have delivered strong results. This is a testament to the strength of our utility light business model, our unwavering focus on safety and operational excellence and North America's increasing demand for our essential services.

Speaker 3

We've created significant shareholder value despite market volatility and macroeconomic challenges, I'm confident that we'll continue to do so. Thank you. And I'll now pass the call back

Speaker 1

to Francois. Thanks, Joel. In summary, our priorities for the year are clear: continue to execute on our major projects such as CGL and Southeast Gateway Accelerate our deleveraging targets by managing our capital spending and advancing our asset divestiture program and third, Achieving safe, reliable and sustainable operations and our focus on operational excellence to drive higher returns. To reflect our commitment to these priorities and to better align with our shareholders, we have introduced new performance measures that explicitly tie executive compensation to cash flow per share, deleveraging and greenhouse gas emission reduction targets. I'm confident that the future opportunity set, combined with our capabilities and reflecting capital discipline, will unlock additional value and deliver superior shareholder returns well into the future.

Speaker 1

Thanks. And I'll now turn the call back over to the operator for questions.

Operator

Thank you. We will now begin the question and answer session. The first question comes from Rob Hope with Scotiabank. Please go ahead.

Speaker 4

Good morning, everyone. First question is just on capital allocation. In the prepared remarks, it was noted Sanctioning new capital must fit with the financial capacity of the organization. How does while it's small, how does the Wind acquisition Why not pursue a more capital light strategy for your renewables here just given you are selling some assets?

Speaker 5

Good morning, Rob. This is Corey Hesson. These opportunities are the product of a 2022 process that's Closing in 2023 and was already in our capital plan. These are high quality operating assets with best in class equipment Generating immediate EBITDA for the enterprise. We have a long term service agreement in excess of 15 years with original equipment manufacturers for both locations that include availability guarantees for both facilities.

Speaker 5

We are in advanced discussions with creditworthy counterparties for the power generation and the environmental attributes from these facilities. In summary, the Texas wind farms are within our capital plan and a modest capital investment To help TC Energy execute on our decarbonization goals.

Speaker 4

All right. Appreciate that. And then just moving over to Coastal GasLink, with the winter behind us, it looks like you had some successes on keeping the project on time and on budget here. However, as we look to the summer construction season as well as the end of 2023 in service date, what do you see as the key risk factors On keeping the cost and schedule and how are you progressing against those?

Speaker 6

Rob, it's Bevan. I'll take that question. So you're right, we made very good progress this past season. We're laser focused on safely getting this project to the finish line. And As we noted in the remarks that we reaffirm our targets on both cost and schedule here for the year.

Speaker 6

Really what we need to be looking for during the balance is no different than what we've been Working on today is that there are tremendous number of work fronts as you can appreciate on a project of this scale. We're migrating primarily from kind of mainline construction to really a focus on Small discrete work scopes, whether that be Creek installations or rock bluffs. And so we've been developing Mitigation plans for any eventuality that happens on those smaller discrete work scopes. And While we're progressing extremely well on the entirety of the project, we've had to move to really A front foot on being proactive on having backup plans to backup plans. And so When we provide updates, we'll be focusing mostly on how we've moved forward Through these critical last areas of the project and where necessarily implementing Some of our backup.

Speaker 6

So just to give you some proof points on that, we've pre located some equipment to allow us to work through some of the spring breakup periods of time, so that we can provide a bit more flow to the schedule. As Francois alluded to in his remarks, we've completed the trenching on Cable Crane Hill. That's 3 months ahead of schedule. So we're trying to wherever we can provide a significant buffer for us because we know that any of these Critical work scopes could have us really going to Plan B and Plan C. And so that's really where the focus is.

Speaker 6

But We had the successful introduction of gas into Wild Lake. That's on that was executed to plan. We had over 1,000,000 man hours Safely completed there. So we're very encouraged, but we're extremely focused on managing these final critical scopes

Operator

The next question comes from Theresa Chen with Barclays. Please go ahead.

Speaker 7

Good morning. Thank you for taking my questions. First, I'd love to get some more details on where you are in the asset sale process at this point. Now that it's been several months in the making, do you have additional clarity on the types of assets you're looking to divest and how should we think about the valuation?

Speaker 1

Thank you, Teresa. And I appreciate that there's lots of interest in our asset sale processes and our deleveraging plan. As I mentioned, it's one of our 3 key priorities for the year. I'll just remind everyone that we are at a very Commercially sensitive point in our discussions, we have multiple processes underway at the moment. And so we'll refrain from making any specific comments Tension is to maintain the quality of our portfolio.

Speaker 1

So we will be monetizing assets In or interest in assets in various parts of the portfolio to maintain our cash flow composition that we view as very high quality.

Speaker 7

Thank you. And if I can ask Dan, on the progress on Southeast Gateway at this point, what percentage has been done? How much capital of the 4 point 5

Speaker 8

Hey, Theresa, this is Stan. As Francois reiterated upfront, our Southeast Gateway pipeline continues to track to a Midsummer 2025 in service date, dollars 4,500,000,000 of CapEx, both of which is unchanged from when we FID ed the project this summer. I would note that we're really pleased with our partnership with CFE. They have and will continue to play a very key role for us in helping to secure both land and permits. In terms of activities that have been ongoing, steel plate is being delivered, pipe is being rolled and preparations for its concrete coating are underway so that the Subsea Pipeline Lake can commence at the end of this year.

Speaker 8

Specifically to your questions, there are 3 key milestones that we are focused on this summer, Diligently focused on, I should add. 1st is commencing construction on our 2 compressor stations. 2nd is Securing the right of way for our onshore pipeline, which you recall, is relatively small at about 21 kilometers. And lastly is Commencing preparations for the onshore construction work associated with the microtunnel, so that the microtunneling itself can take place in early 2024. So overall, we continue to incorporate the lessons learned from prior projects Such as sir de Tejas, but we're really pleased with our projects progression as of now and we'll continue to update you

Operator

And the next question comes from Linda Ezergailis with TD Securities. Please go ahead.

Speaker 9

Thank you. Wondering if you could maybe give us some sense of What your expectation for 2024 capital expenditures specifically might look like? And What sort of magnitude of additional wind or solar power acquisitions might be embedded in your budget for this year, next year or potentially even added to what you've baked in?

Speaker 1

Thanks, Linda. It's Francois. I'll take that one. As we've talked about before, once a project is In construction, and we break ground, we've probably been at it for a couple of years from a perspective of Permitting and project planning and having ordered long lead items. And one of the reasons why we're going to strive for building some optionality below Our $7,000,000,000 capital run rate going forward is that we do want to make sure we maintain some Capacity for further debt reduction or share buybacks going forward.

Speaker 1

It's going to take us the balance of this year and 2024 to work our way down to That $7,000,000,000 or really $6,000,000,000 run rate. And so you can expect us to be well below the 11.5 to $12,000,000,000 of capital that we have in the plan for 2023 trending Towards that $7,000,000,000 run rate, but not quite there yet for the because of the dynamic that we've identified. With respect to plans for additional renewables or other assets in our program going forward, Remember, these are very small capital dollars, tens of 1,000,000 to low 100 of 1,000,000 over time. We will be utilizing project financing and tax equity wherever possible to get our equity checks down to Very modest levels. And as we have worked through our capital program And tested our ability to maintain a stable balance sheet, grow our cash flow per share, grow our dividend, have strong payout ratios To get to a level of comfort where we can say that $6,000,000,000 to $7,000,000,000 is our run rate, we have factored in To our capital program, some additional renewables as well as some additional investment in our other businesses.

Speaker 9

Thank you. This is my follow-up, just trying to round out my understanding of Coastal GasLink. Can you advise if you've used any of the contingency in your budget this year to add to your schedule buffer or for any other reason? And do you see a high likelihood at this point of dipping into your contingency to pay for some of the buffers and the Plan B contingencies that We're lining up to ensure you stay on schedule.

Speaker 6

Yes. Thanks, Linda. It's Bevan here. So Right now, we're tracking really closely to our cost and schedule targets. Certainly, as we preposition certain work scopes, we spend some of those dollars a little ahead of plan or otherwise, but we actually incorporated that in our thinking Probabilistically and so under certain scenarios, we're certainly going to draw down on some of the contingency.

Speaker 6

But right now, We're tracking where we've been or where our plan was to be at this time. A lot of when we're making the trade off decisions to pre spend on different activities, Those are well within the plan. We've maintained access to the headwall and other critical path scope, Removing a ton of snow, we put that in the plan. So we're very thoughtful when we came forward with our revised budget last The quarter to make sure that we have a variety of scenarios, not just a single scenario in mind in terms of the finishing or the executing of the project.

Operator

Thank you. The next question comes from Jeremy Tonet with JPMorgan.

Speaker 10

Just want to come back the CGL construction from a little bit of a different angle. I think there might have been Kind of competition for labor between CGL and TMX. And I was just wondering if you could comment there and I guess, Hi C TMX progressing at this point, if it's close to kind of winding down, does that lead to kind of less Stress left pull on the labor pool and how would that impact CTO?

Speaker 6

Jeremy, I'm not going to Speak to TMX, I don't know exactly what their plans are. What we're seeing on our project is we've had great retention of The contractor labor, we've seen increased of quality and actual productivity this year. And like I mentioned earlier, we're migrating to a very different type of scope of work. And what I can say is that scope of work looks A lot different than what TMX is focused on in this year's construction. And so we're very, very mindful that there are There is competition for labor.

Speaker 6

We'll be focused on seeing how our labor force returns post The breakup, but post the Christmas breakup where there was the same type of competition from TMX, we actually came back stronger. So we had Nearly 6,500 folks on the right of way through the Q1 of this year at a time when TMX ramped up their labor force more than significantly more than what they were last year. So We're maintaining a pretty strong position with our labor force right now, which we're thankful for, and we're working really closely with our contractors to Be just laser focused on retaining the right people to get this thing done by the end of the year.

Speaker 10

Got it. That's helpful there. And just wanted to pivot a little bit to Colombia. There's news out there With regards to, I think, a lightning strike that might have impacted the Corinth compressor station and led to a force Sure. I realize this is all very kind of real time here, but didn't know if you could help us with any color on how to think about that.

Speaker 7

Yes. Thank you. This is Tina Farrokhah with the U. S. Gas Pipeline Business.

Speaker 7

We did have a lightning strike this morning, very early this morning that caused a fire within our fence line at the Corinth compressor station. The fire has since been extinguished, very minimal impact to facilities. We've managed through that and plan to get the station back online later this afternoon.

Speaker 10

Okay. So this is just like a one day impact type of thing?

Speaker 4

Yes.

Operator

And the next question comes from Robert Kwan with RBC Capital Markets. Please go ahead.

Speaker 4

Okay. Thank you. If I can come back to the commitment to keep CapEx Hello, dollars 7,000,000,000 just questions here. So first, does that include acquisitions? 2nd, the current period elevated CapEx is really Part of it has been driven by cost overruns.

Speaker 4

So just wondering how you'll think about managing your cost risk Definitely going forward. And then 3rd, just specifically, does this what does this mean for Meaford? Or are you excluding project level financing from that $7,000,000,000 number?

Speaker 1

Hey, Robert, it's Francois. I'll take that one. So With respect to managing cost overruns, we have in Prudent project management, we have a reasonable contingency for each of the individual projects that we have in our capital program. And so Striving to work towards a $6,000,000,000 run rate program going forward, And that gives us flexibility and optionality around further debt repayment and share buybacks. It also gives us additional flexibility To the extent we have any unforeseen circumstances around any one individual project.

Speaker 1

$6,000,000,000 or $7,000,000,000 is our sanctioned capital. To the extent we have partners, that would be in addition or outside of that number. With respect to the specific Peculiarities of any individual project in terms of project financing, that may or may not be considered depending on the project. A project like Ontario Pump Storage is a significant undertaking. And so This is not only a financial equation.

Speaker 1

It's also a human capacity equation. When we think about having a very large capital program, Our ability to manage a smaller program reduces execution risk and allows us to continue to Grow our dividend at the stated rate, grow our cash flows at or above that rate and keep A stable balance sheet and maintain stable and very conservative payout ratios. So You won't see the capital program far outstrip our sanctioned capital, but for reasons of human capacity. And as we move forward with different projects, we'll be contracting for them differently, mitigating risk using On all of the above basis, you should think about that $7,000,000,000 striving for 6 as our sanctioned capital Going forward.

Speaker 4

Just on acquisitions included or excluded?

Speaker 1

Thank you for reminding me of that. We don't distinguish. There is no M and A in our plan. We don't Think that M and A is required for us given our opportunity set To grow our distributable cash flow per share at a rate at above our dividend growth and maintain stable payout ratios and a stable balance sheet, It's just really not on our radar right now. And if it were, Robert, it would be included in that cap.

Speaker 4

Okay. That's great. If I can finish just on capital allocation and just back framing against the wind acquisitions. You noted that while they're in the 2023 capital program, you previously talked about just generally the ability to defer capital and this seems like something that could have been eliminated. So while they're operating, I assume you acquired it for higher than 5 times EBITDA and less than a 15% FFO yields, I.

Speaker 4

E. Acquiring should be delivered to the credit metrics. So was there something binding you to Can you just talk about the strategic nature of the 2 assets and the synergies they provide to the existing asset base?

Speaker 5

Hi, Robert. It's Corey. I would say that, yes, this was in our plan. And what I would emphasize is that we have Long term commitments to our shareholders and constituents across our jurisdictions.

Speaker 4

Okay. Thanks very much.

Operator

The next question comes from Robert Catellier with CIBC Capital Markets. Please go ahead.

Speaker 11

Hey, good morning. I know you're trying to avoid discussing any particular asset, but I wonder if You can discuss as an asset class, the merchant power. Alberta power prices have been quite strong over the last year or so. How does this influence your view on this asset class as a candidate for portfolio management? In other words, does the market Support a stronger valuation?

Speaker 11

Or would you rather retain them for their currently strong cash flow?

Speaker 1

Robert, it's Francois. What I would tell you is divestitures the purpose of our divestiture program is to deleverage. And so we call that raising internal equity. And internal equity is driven by the valuation in excess of 5x debt to EBITDA. And so as we choose which assets to monetize, we consider what the EBITDA multiple is above that 5x Amount because we have to have to maximize that spread over 5x EBITDA to maximize our deleveraging.

Speaker 1

So to the extent Our Alberta assets could achieve multiples well in excess of 5x debt to EBITDA, We would be open to proceeding and I'll leave it at that.

Speaker 11

Okay. And maybe a question here for Stan. It looks like the volumes were pretty good on the deliveries to LNG facilities again. I'm wondering if you can provide us some progress update on Any additional positioning you have for the U. S.

Speaker 11

Gas Portfolio and Development Projects to address additional LNG opportunities?

Speaker 8

Yes, Robert, this is Stan. And as you heard me say before, our best in class pipeline footprint hasn't gone to continue To provide us with more than ample growth opportunities at attractive build multiples. Our challenge today, as you heard, is best with originating new projects and it's making sure that we have a way So given that our origination efforts are highly selective and focused on strategic opportunities where we can leverage our existing footprint, specifically in regions where projects can be permitted and constructed at attractive build multiples. So these opportunities today exist With respect to additional LNG exports, particularly in Louisiana, as you noted, and increasing the connectivity that we have to our LDC customers, which are backed by Long term 20 year contracts. So in some instances, where appropriate, we also may consider taking on a strategic joint venture partner.

Speaker 8

But equally important, I just want to point out that we are laser light focused on ensuring operational excellence and reducing our costs And doing so without sacrificing the safety or the integrity of our assets and ensuring that we place our projects in service on time and on budget. Robert, it's Francois.

Speaker 1

I'll just add to Stan's comment. As we look to sanction capital going forward, the timing of the spend will be a critical Factor in our assessment. We're laser like focused on Staying below that $7,000,000,000 and actually $6,000,000,000 run rate of capital spend. And so as you look To sanctioning projects in the future and given the size of our capital program to date, really, As we sanction projects going forward, they will have the significant capital spend will be in later years. That's fine.

Speaker 1

It typically takes a couple of years to permit and permit a project and get the long lead items in place. And so projects we're looking at developing right now and competing for have spend in that 'twenty five, 'twenty six, 'twenty seven Time frame and where we do have additional capacity to sanction projects and stay within that $6,000,000,000 annual

Operator

And the next question comes from Ben Pham with BMO. Please go ahead.

Speaker 12

Thanks. Just wanted to go back to the renewables side of things and your strategy there. And I think For some time, what was holding you back a bit on expansion is more of the lofty multiples on Renewal Power Assets and you've had the aggregation model as well that you've introduced last year. Can you talk about now the trends you're seeing? Is it better to buy versus build?

Speaker 12

How does it compare to aggregating How are and maybe an update on strategy there?

Speaker 1

Ben, it's Francois. I'll take this one. As we talked about before, we're focused on sanctioning capital over the long run on the basis of affordability, reliability and sustainability. Renewables will be a complementary asset class in our portfolio to help Achieve our own decarbonization goals, while at the same time helping our customers decarbonize their own energy consumption. Where possible, we will adopt a capital light approach.

Speaker 1

We talked about the aggregation activities last year, which are continuing to proceed. In some instances where we see value and it fits within our capital plan, Underscore that it fits within the capital plan and the $6,000,000,000 per year limit will consider ownership in projects. But as Stan mentioned in the context of our U. S. Gas business, across our whole portfolio, one of the things we're going to be looking at is Joint ventures and partnerships with financial firms and other strategics to make sure we can advance our decarbonization goals, Our market share aspirations in the U.

Speaker 1

S. LNG market but still stay within Our annual sanctioned capital limitations going forward. Okay.

Speaker 12

Maybe next on flexibility for per share buybacks, maybe you can expand on that A little bit, how do you feed into your calculus? Where do you need to be with leverage to think about that?

Speaker 1

Yes. Look, over the next couple of years, that's not an option. Our priority For 2023 2024 is to deleverage. Our goal is to get at or below 5x debt to EBITDA as Quickly as we can without compromising shareholder value and then remain there. What I wanted To convey in my comments is it's very difficult to stop a project once it's been committed to Just because your stock price is at a level that you think is attractive in terms of share buyback, by the time you break ground on a project, You can't just tell your customer that they're not going to receive the transportation service they've been planning on and waiting on for many years.

Speaker 1

So by building Flexibility and the flexibility would come from the gap between 76 into our program on an annual basis. We will have the option In each and every year, with that incremental capital to live within our means to either pay back debt And we're confident that we're going to remain below.

Operator

The next question comes from Andrew Kuske with Credit Suisse. Please go ahead.

Speaker 13

Thanks. Good morning. The question is really for Francois and the emphasis on the limiting the CapEx post 2024 to the 7,000,000,000 And then getting it down to the 6, does that effectively allow you to high grade your capital allocation process to higher returning projects?

Speaker 1

I would say most definitely, Andrew. It's not just about unlevered after tax IRRs. We do want to migrate Portfolio, we think about having a high quality and diverse portfolio with low volatility. That's part of our value proposition. But there's no question, As I've said in the past, we see way more opportunity to deploy capital than we have financial and human capital to execute.

Speaker 1

And what that's going to allow us to do actually is to high grade projects. And in fact, when you look at what we sanctioned in 2022, The unlevered after tax IRR was in the is in the 10% range, and that's above the weighted average IRR of what we sanctioned In 2021, which was, I think, in that 8.5% to 9% range. So we're seeing an upward trend in the returns On the projects that we sanctioned over the last couple of years and clearly by limiting our capital spend to living within our means, It's going to give us the opportunity to high grade to our higher returns, but we also are going to consider having a proper diversity and migrating the portfolio To an appropriate supply mix.

Speaker 13

Appreciate that. And then maybe not to be greedy, but the trend of high grading returns, Your earlier comments on bringing on partners, whether they be financial, strategic or otherwise, does that allow you to engage in some kind of Asset management model, get a promote on a project. How do you just sort of conceptualize that and think about it?

Speaker 1

1st and foremost, Andrea, and that's a great question, is we're going to focus on our human capacity. We have An ability to manage a capital program of a certain size, and we are going to make sure that we always have The capacity and the capability to adequately manage the capital program we have underway. An asset management model would suggest developing and building projects for others. And we're going to be very mindful of maintaining A size of capital program that's within the capacity of our team.

Speaker 13

Thank you very much for that.

Speaker 1

You're welcome.

Operator

And the next question comes from Patrick Kenny with National Bank Financial. Please go ahead.

Speaker 14

Thank you. Good morning. Just on Keystone here as you look to implement your enhanced integrity program going forward,

Speaker 13

Can you provide a little

Speaker 14

bit more detail with respect to the cadence of these additional in line inspections and Excavation work that needs to be completed across the system, I guess what the total cost of this program might do to your prior maintenance CapEx guidance As well as the process for recovering these costs through your total structure or other means?

Speaker 6

Yes, sure. This is Richard Pryor. I'll take that. And so as we mentioned In our release, there's additional remediation work that we need to do. So we need to work through our remedial work plans with respect to Malplus Gene as well as the PHMSA corrective action order, that is going to include additional excavations, as you mentioned, and in line inspection runs.

Speaker 6

So we've already started that work. And to date, we've actually run 300 miles of tool runs on the pipeline adjacent to the And we've not found evidence of similar features. In addition to this, we're also going to be completing engineering assessments. So

Speaker 1

At this

Speaker 6

time, we did just receive the root cause failure analysis last week as did PHMSA. And so there is going to be some more work to do to continue to study that and develop the details of this program. And I don't have A time line I can provide to work these remedial work plans and resolve the corrective action order, but I can't say that we are fully committed to expediting this work. I also don't have a cost estimate for this integrity scope I can share at this time. However, this work, it would form Part of our operating maintenance and integrity scope for the system and that would be recoverable through our variable tolls.

Speaker 14

Okay, great. Thanks for that. And then just in terms of, I guess, an update on the egress picture out of Western Canada, and I guess in light of where natural gas prices are at currently, can you comment on where you're seeing customer demand For incremental market access, California, Gulf Coast, East Coast, and I guess what this could mean for

Speaker 15

Sure. Thanks a lot, Patrick. It's Greg Grant from the Canadian Gas Business. And I'll start and then hand it up back to the U. S.

Speaker 15

Gas Business. First, it's been great to see both from an operational perspective and from our capital programs. We continue to get assets in the ground and we actually We're a few weeks ahead of time on coming out of our 'twenty one program and some of our NC build this spring. So last year, you would have known we put about 1.3 Bcf of intra basin and egress this quarter, added over 700 MCF and soon to be another 500 here. So that's been great to see the team and the performance there.

Speaker 15

That hasn't soft up The demand, I would say, we still have significant demand coming in on all parts of all points of egress, I would say. And Intra Basin, you would have seen we're about 1 Bcf again on the supply side. So that's year over year. 2 years, we've been over a Bcf added to the system. So while we've added that capacity, we are still at high utilization levels.

Speaker 15

So you will see probably in the next couple of weeks, months, we did announce some open seasons will be coming. So the team are Looking at ways that we can continually optimize the system and create additional capacity where we can. That includes both existing and some new opportunities, which we'll talk about in the following quarter.

Speaker 8

On the U. S. Side, just think of us as the big catcher's mitt. Greg throws the ball and we try to catch it. We have an expansion project, as you're aware, On the GTN system, right now, our GTN Express, which is currently pending before FERC, and we're anxiously awaiting our certificates so we can get that capacity constructed and in service either later this year or early 2024.

Speaker 8

We also have the ability to Attract volumes in on our Great Lakes system and again working closely with Greg's team as they submit open seasons on their side of the border to get additional capacity Down to the U. S. Another thing I would point out of late is there seems to be some interest from the LNG market In Louisiana, to have additional exposure to Canadian volumes as well. So we're as appropriate to get more Canadian gas down to the LNG terminals.

Speaker 14

Okay, great. Thanks for that update, guys. I'll leave it there.

Operator

And the next question comes from Brian Reynolds with UBS. Please go ahead.

Speaker 16

Hi, good morning. Thanks for sneaking me in. Maybe as a follow-up on some of the prior labor questions, you mentioned that you're at 6,500 on the job now. So curious just what's the assumption for peak labor in project for the projects for Coastal GasLink this summer to reach

Speaker 6

Yes. Thanks, Brian. We're effectively at peak and we'll be winding down now. So coming back from spring, FreshJet will not be bringing back the same level of crews, but a significant number of Folks will be coming back. As I mentioned, we're at some discrete Scopes now, we're effectively finishing off any of the traditional kind of mainlining activities where we have significant number of Cruz, so I would say come to the fall, we'll be in a much more significant ramp down of Folks out there in the field, but our ability to continue to successfully manage and mitigate All our risks during the summer and the fall construction will be the key determinant in our ability to meet our costs and schedule goals.

Speaker 6

So we're more Focused on managing the risks and inclusive of that is the labor front, but we feel that we're in a good position there.

Speaker 11

So I think we've got time for just

Speaker 15

one last question, if you don't mind.

Speaker 16

Yes. And then Great. Thanks. And just touching on the credit rating, TransCanada has been put on negative outlook by S and P. So My first part of my question is, is TransCanada committed to defending that credit rating at any cost, perhaps in the context of M and A sales?

Speaker 16

And then second, how does TransCanada handle asset sales versus perhaps impacting its earnings mix? Thanks.

Speaker 3

Thanks, Brian, and it's Joel here. It's the last question of the day, I finally get to respond. With regard to the credit ratings, we do value the credit ratings. As you've highlighted, we are in negative outlook right now with 3 of the agencies being S and P, Moody's and DBRS, we were downgraded following the announcement on the CGL cost overruns by Fitch. We put a lot of value on the rating.

Speaker 3

We believe with our plan here to sell $5,000,000,000 plus of assets That we will be able to get our leverage down to our target, as Francoise mentioned, to that 5x in the near term and then ultimately down to 4.75x. That's our objective. And so with the plan that we have right now with $5 plus 1,000,000,000 of asset sales, with our growing EBITDA, you just saw us Today, as I mentioned, we had a 60% year over year increase in our EBITDA. That the combination of those 2 that we believe that we can get down to the 5 times With regard to, I think, your question around asset sales and I think you said with perhaps if I'm not mistaken, We balance both here. We've got the $5 plus 1,000,000,000 of asset sales, as we mentioned.

Speaker 3

And in our plan, we always factor around 15% of our capital structure being comprised of

Operator

Ladies and gentlemen, this concludes the question and answer session. If there are any further questions, please contact Investor Relations at TC Energy. I will now turn the call over to Gavin Wiley. Please go ahead, Mr. Wiley.

Speaker 2

Yes. Thanks, everybody, for your participation this morning. For the questions that we didn't get Please reach out to Investor Relations and the team was happy to have discussions later this morning. We thank you very much for your interest in TC Energy

Speaker 1

And we look forward to our next update. Have a great day.

Operator

This concludes today's conference call. You may disconnect your lines. Thank you for participating and have a pleasant day.

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