TC Energy Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
February 16, 2024

There are 18 speakers on the call.

Operator

Thank you for standing by. This is the conference operator. Welcome to the TC Energy 4th 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 questions.

Operator

I would now like to turn the conference over to Gavin Wiley, Vice President, Investor Relations. Please go ahead.

Speaker 1

Thanks very much and good morning. I'd like to welcome you to TC Energy's 2023 Q4 conference call. Joining me are Francois Poirier, President and Chief Executive Officer Joel Hunter, Executive Vice President and Chief Financial Officer along with other members of our senior leadership team. Francois and Joel will begin today with some comments on our financial results and operational highlights. A copy of the slide presentation that will accompany their remarks is available on our website under the Investors section.

Speaker 1

Following their remarks, we'll take questions from the investment community. We ask that you limit yourself to 2 questions. And if you're a member of the media, please contact our media team. Before Francois 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 with the U.

Speaker 1

S. Securities and Exchange Commission. Finally, during the presentation, we'll refer to certain non GAAP measures that may not be comparable to similar measures presented by other entities. These measures are used to provide additional information on TC Energy's 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.

Speaker 1

With that, I'll turn the call over to Francois.

Speaker 2

Thanks, Gavin, and good morning, everyone. At the beginning of 2023, we set out to deliver on 3 clearly defined priorities that focused on maximizing the value of our assets, project execution and enhancing balance sheet strength. And I'm pleased to report that we delivered on all three of those commitments. Our focus on safety and operational excellence resulted in high availability and several utilization records across our systems that contributed to 2023 comparable EBITDA being 11% higher compared to 2022, another record year for operational and financial results. We also announced our intention to spin off our liquids pipelines business to create 2 standalone investment grade companies with greater flexibility to implement distinct strategies to unlock their full potential and deliver incremental long term shareholder value.

Speaker 2

Our focus on project execution resulted in placing approximately $5,300,000,000 of projects into service on budget. And our major projects, including CGL and Southeast Gateway, remained on track or ahead of our 2023 targets. We committed to enhance our balance sheet strength through capital rotation and successfully closed the sale of a non controlling interest in our Columbia pipelines with cash proceeds totaling 5,300,000,000 dollars and that reduced our 2023 debt to EBITDA leverage metric by over 0.4 times, a major step towards reaching our 2024 year end objective of 4.75 times debt to EBITDA. And with this positive momentum, building into 2024, we have increased our dividend for the 24th consecutive year and reaffirm 2024 comparable EBITDA outlook to be between $11,200,000,000 $11,500,000,000 Now after 5 years of construction and 55,000,000 hours worked, we achieved the monumental milestone of mechanical completion on Coastal GasLink. This was one of the most technically challenging pipelines ever built in Canada, and our team applied project execution and safety excellence to deliver this project ahead of our year end target.

Speaker 2

Following mechanical completion, we completed the required commissioning process safely in 2023, and we are now ready to deliver natural gas to LNG Canada's facility as soon as they are ready to receive it. Reflecting the team's monumental efforts to achieve these milestones, as the project developer, TC Energy earned a $200,000,000 incentive payment that was settled through a cash distribution earlier this week. Post construction and reclamation activities will continue throughout 2024 with the project remaining on track with its cost estimate of approximately 14,500,000,000 dollars The success of this project is not only important for TC Energy and for our customer LNG Canada. It's a nation building project that will provide Canada's 1st direct path for sustainably produced Canadian natural gas to reach global LNG markets. In Mexico, we are making meaningful progress on our Southeast Gateway Marine pipeline.

Speaker 2

We reached a milestone in the Q4 when we began offshore pipe installation for the project. We've now completed 100 percent of the concrete weight coating on all of the offshore pipe and the remainder of the offshore pipe installation will continue throughout this year. And with all critical permits for construction obtained, the onshore construction at all landfall sites continues to progress on plan. Importantly, the project continues to track schedule and expected cost of US4.5 billion dollars as we continue to see benefits from sanctioning this project under our enhanced capital allocation governance process that included a Class III estimate prior to our final investment decision. Now, while our utility like assets do not carry any material volumetric or commodity price risk, continued high utilizations throughout the 4th quarter continue to reflect volume growth and the incremental demand for underpins our future investments.

Speaker 2

Within our integrated natural gas business, total NGTL system deliveries in Canada averaged 14.5 Bcf a day, while our investment base grew by 9% year over year. In the U. S, various pipelines achieved record throughput volumes, including our GTN system, which achieved an all time delivery record of 3.1 Bcf in November. And our Mexico pipelines daily throughput was also higher, averaging 2.7 Bcf per day, which is up 30% compared with the Q4 of 2022 levels. In our Power and Energy Solutions business, our focus on operational excellence centers around our assets being available to deliver power when it was needed most.

Speaker 2

And our Alberta cogen power fleet achieved 99% availability in the 4th quarter. And Bruce Power also had strong performance and averaged a 92% availability throughout 2023, which is well above our historical averages. Bruce Power's Unit 6 returned to commercial operations in 2023 following its major component replacement outage ahead of schedule and within budget. Bruce also submitted its final basis of estimate for the Unit 4 MCR with the ISO in the Q4 and we have now received the ISO's approval last week. Unit 4 will be the 3rd of 6 units in the Bruce MCR program, where we are extending its asset life for the next 40 years.

Speaker 2

This exceptional emissionless asset produces 30% of the electricity in Ontario. On South Bow, Bevin and team continue to make progress on the proposed spin off of our liquids pipelines business into a standalone investment grade entity. Van Defoe has been named as incoming Senior VP and CFO. With over 30 years of experience in the energy industry, including being the CFO of a public company for 8 years, Van will be instrumental in leading South Boast Financial and Strategic Affairs. Additionally, Lori Murata was named as incoming Senior VP and General Counsel.

Speaker 2

Lori will oversee South Bo's legal, compliance and regulatory activities, bringing over 20 years of experience in the energy industry and 30 years overall practicing law. For next steps, we expect our proxy circular will be filed in the first half of this year, and we remain on track to advance a shareholder vote by mid year. It is expected that we will hold our AGM concurrently with the shareholder vote on the spin off transaction. And now I'll turn the call over to Joel.

Speaker 3

Thanks, Francois. Strong operational performance during the 4th quarter delivered 16% year over year growth in comparable EBITDA. The primary driver of this growth relates to increased comparable EBITDA from our Canadian Natural Gas Pipelines business, largely related to the recognition of a $200,000,000 incentive payment upon meeting certain project milestones on Coastal GasLink. This amount was settled through a cash distribution on February 12, 2024 and was recognized as income from equity investments in our consolidated income statement for the year ended December 31, 2023. I'll note that even when excluding the $200,000,000 incentive payment, we delivered approximately 8% growth in comparable EBITDA versus Q4 2022.

Speaker 3

As Francois mentioned, our base business performed exceptionally well during the Q4 and throughout 2023, our team safely placed approximately $5,300,000,000 of projects into service on budget. We also delivered a 24% increase in quarterly comparable earnings relative to last year. This largely resulted from increased comparable EBITDA, partially offset by higher interest expense and higher net income attributable to non controlling interests following the Columbia sale in 2023. For 2024, we expect comparable EBITDA to be between 11.2 $1,000,000,000 to $11,500,000,000 consistent with what we announced at our November 2023 Investor Day. This growth is primarily driven by an increase in the NGTL system, the full year impact of projects placed into service in 2023 and approximately $7,000,000,000 of new projects expected to be placed in service this year.

Speaker 3

Comparable earnings per common share is expected to be lower than 2023, largely due to higher net income attributable to non controlling interests related to the Columbia sale. Total net capital expenditures for this year are expected to be approximately 8 $1,000,000,000 to $8,500,000,000 I'll now discuss a few highlights from our 2024 outlook. Within our Integrated Natural Gas Pipelines business, comparable EBITDA is expected to be consistent in Canada due to the continued growth of our NGTL system, partially offset by the absence of the Coastal GasLink incentive payment that was recognized this year. Higher in the U. S, largely due to assets placed in service in 2023 and projects we expect to place into service in 2024, including Gilles Access and GTN Express.

Speaker 3

And higher in Mexico with growth underpinned by a full year of incremental revenue from the BDR lateral that was placed into service in Q3 2023. With Bruce Power Unit 6 having returned to service, comparable EBITDA from our Power and Energy Solutions business is also expected to increase relative to 2023. Is expected to be consistent with 2023. Is expected to be consistent with 2023. Consistent with what we showed at Investor Day and excluding contributions from the Liquids Pipelines business, shown on the left hand side of this slide, comparable EBITDA out to 2026 is expected to be in the range of $11,200,000,000 to $11,500,000,000 Growth out to 2026 is underpinned by high quality assets that are expected to be placed into service, further supported by the highly rate regulated and long term contracted nature of our business.

Speaker 3

I'll note that recent announcements related to our Heartland project and Bruce Unit 4 MCR were included in our net capital expenditures outlook shown at Investor Day. These projects do not change our commitment to limiting net capital spending to $6,000,000,000 to $7,000,000,000 with a bias to the lower end in 2025 and beyond. Looking to the right hand side of this slide, South Bo's long term outlook also remains consistent with what Bevin showed at Investor Day. The South Bo team expects to see comparable EBITDA growth averaging 2% to 3% out to 2026 delivering low risk double digit shareholder returns. Bevin and his team have the intention to have the majority, if not all, of the capital structure in place prior to the spin off, subject to a successful shareholder vote.

Speaker 3

Anticipated proceeds from the senior and subordinated debt issued at South Bo will be used to repay approximately $8,000,000,000 of TC Energy debt and help meet future funding requirements. Underpinned by our strong performance last year, TC Energy's Board of Directors has declared a Q1 2024 dividend of $0.96 per common share, which is equivalent to $3.84 per share on an annualized basis, representing a 3.2% year over year increase. This is the 24th consecutive year the Board has raised the dividend, which is foundational to the enduring value proposition of PC Energy. Thank you. And I'll pass the call back to Francois.

Speaker 2

Thanks, Joel. We had a great success in 2023 focusing on executing a clearly defined set of priorities that directly align to our strategic vision and value proposition. So for 2024, there should be no surprise that our strategic priorities will look very similar to 2023's. 1st, we'll continue to maximize the value of our assets through safety and operational excellence and by successfully executing the spin off of South Bow. 2nd, we will remain focused on project execution, delivering on time and on budget, including Bruce Power's MCR3 and advancing Southeast Gateway's mechanical completion by the end of 2024.

Speaker 2

And third, we will continue our path to achieving and sustaining our 4.75 debt to EBITDA upper limit by the end of 2024 by advancing our divestiture program and continuing to streamline our business through our efficiency efforts. By executing on our high quality secured capital program, we expect to deliver 2024 comparable EBITDA of $11,200,000,000 to $11,500,000,000 and incremental long term value for our shareholders. With that, I'll turn it over to the operator for questions.

Operator

We will now begin the question and answer The first question comes from Rob Hope of Scotiabank. Please go ahead.

Speaker 4

Good morning, everyone. Questions on Mexico. Southeast Gateway has over half the spend out the door already. As we take a look into 2024, what key milestones should we be watching for? What do you view as the highest risk factors?

Speaker 4

And how is spend have you seen a increase in any contingencies there? Hey, good morning, Rob. This is Stan. As Francois pointed out, we have no change in our cost of schedule and we're continuing to track to the $4,500,000,000 cost estimate in summer 2025 in service date. And we spent about $2,500,000,000 or so to date.

Speaker 4

We'll spend another $1,500,000,000 this year and about $500,000,000 or $600,000,000 closing things out in 2025. Just a couple of highlights. As of earlier this week, we've laid about 2 25 kilometers, which is about 34% of our subsea pipeline in the Gulf of Mexico. The work that we're doing on shore is progressing nicely at all 3 of our landfalls. As a matter of fact, at Patricio, we actually completed our drill last week on time and on schedule.

Speaker 4

The micro tunnel that we're building in Quassacopa should be completed sometime by the end of this month. So going forward, when I think about next milestones, we should have all of the deepwater portion of the subsea pipeline completed by early summer. The shallow water tie in work should be completed by the end of the summer. And then the compressor work will be completed this fall so that we could then turn our attentions to commissioning activities and putting the project in service for summer 2025. So no changes to capital costs, no changes to contingencies at this point in time, but the project is progressing nicely as planned.

Speaker 4

Excellent. And then just keeping on Mexico, is there any updated thinking on how to get to the 10% Mexico EBITDA limit? And is this more of a near term or longer term target? Or where could we see some additional clarity there?

Speaker 2

Rob, it's Francois. I'll take that one. As we've said before, we remain committed to reducing our exposure as a percentage of consolidated EBITDA. That 10% threshold was prior to the spin, post spin, if we're successful, probably more in the 12% range. We are exploring a variety of different avenues to begin lowering our exposure.

Speaker 2

We are prepared to transact in 2024, but we're not going to give up shareholder value to do that. We're progressing nicely on construction on Southeast Gateway. So we're going to take our time and do this in an orderly fashion and look over the next 2 or 3 years to be reducing to that 10% to 12% level.

Operator

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

Speaker 5

Good morning. Maybe hitting on that last point and you put into the broader asset divestiture program. As you seek to delever towards your target by the end of this year, can you provide any updates on the progress of additional asset sales this year? And just the steps from here, transaction timing, size and such, anything we can think about there?

Speaker 2

Teresa, we have a number of processes in market right now. So I'm going to maintain deal discipline to every extent possible, but still try and help you here. As we've mentioned in the past, we're not looking to do a single transaction to achieve the $3,000,000,000 like we did last year with the very sizable GIP transaction. Think of us doing anywhere from, let's say, 2 to 4 transactions to get to that $3,000,000,000 number. Those smaller transaction sizes tend to widen the buyer universe because more people can write those check sizes.

Speaker 2

So we have seen good interest in the different processes that we have underway. These processes tend to have their natural pace and cadence. We're hopeful that we'll be able to make at least one announcement in the first half of the year. But again, we're going to be disciplined and make sure that we're preserving value for our shareholders.

Speaker 5

That is helpful. Thank you. And then turning to South Bo and the anticipated growth post spin in order to aid in its own deleveraging. When we think about the potential upside opportunity in Market Link going forward, just given the many moving pieces in that Midcontinent or Permian to Gulf Coast part of the world. So you have certain competitors expanding capacity, others having contract roll off near term, others converting crude back to NGL service and vice versa.

Speaker 5

How should we think about market links, potential expansion of earnings with this background?

Speaker 6

Teresa, this is Bevin. You basically just acknowledge the premise for the spin. There's a tremendous opportunity for South Bow to address the tremendous demand that we've been seeing in the Gulf Coast. We had over 150,000 barrels additional demand on our market linked system here in the last half of twenty twenty three. And that allowed us to underpin over 200,000 barrels a day of incremental contracts on that market linked system here in the balance of the year.

Speaker 6

So we accelerated a bit of the growth that we were anticipating in 2024 into 2023. A lot of that came from I've shared previously the fingers and toes strategy. So we added the Port Neches link last year on time and on budget and that began seeing consistent flows providing that additional outlet for those customers on Market Link. In addition, we brought on the capability to hit Tidewater. So as you mentioned, many are providing different access to Tidewater.

Speaker 6

We have 6 terminals that can now provide that capability for our customers. So our South Post strategy is to leverage that pre capitalized system on the Gulf Coast, but also we're seeing similar opportunities in Alberta where we have an underutilized or under we've already capitalized our Grand Rapids system for example and bringing on additional volumes onto that system is very accretive. And so that underpins our ability to have our own capital structure to attend to those opportunities is a really strong opportunity for our shareholders.

Speaker 5

Thank you.

Operator

The next question comes from Praneeth Satish of Wells Fargo. Please go ahead.

Speaker 7

Thanks. Good morning. Maybe just back to the asset sales for a second. I'm just wondering how the interest rate environment could influence the timing of asset sales over the balance of the year. I mean, I know you mentioned you expect to potentially transact at least one deal in the first half of this year.

Speaker 7

But I think the general consensus is that interest rates will fall over the balance of the year. So does that favor maybe waiting towards the latter half of the year to announce more asset sales? Just curious for your thoughts on then whether that makes a difference in how you perceive the cadence of sales?

Speaker 2

Thanks, Praneeth. Interesting question. As I said in Teresa's prior question, these transactions tend to have their own cadence and momentum is a very powerful thing. No question that in the current environment, certainly when you're thinking about financial buyers that the underlying interest rate environment does have an impact on valuation. We're being really disciplined here.

Speaker 2

We're not in a rush. The agencies have given us the feedback that we do have until the end of 2024 to get to our below the upper limit of 4.75 debt to EBITDA. And we're going to take our time. And it's not lost on us that as monetary policy starts to ease in the second half of the year, we may benefit from that. But having said that, our first priority is to achieve a minimum of $3,000,000,000 of divestitures and to do that by the end of the year.

Speaker 2

And while we're not going to undertake fire sales, if we see reasonable value today, we will transact on it.

Speaker 7

Got it. Thank you. And then it looks like gas deliveries from power gas deliveries to power plants set another record. Just wondering if you could talk about how much of this uptick is being driven by demand from data centers as that seems to be picking up quite a bit here. And whether you're seeing any data centers reach out to you directly for gas supply to maybe power cogen units and go around the grid?

Speaker 4

Puneet, this is Stan. I take that one. Data centers, as you know, tend to be high demand consumers that need a constant and reliable energy source such as provided by natural gas. And we are looking at several options across our footprint that includes some of our smaller pipes out west, opportunities on the Columbia system in Virginia and maybe most recently on ANR where the assets that we have in Mount Pleasant, Wisconsin are going to indirectly serve Microsoft's new data center via a local distribution company that would be in between us and them. So yes, this is a growing demand source for us and something that we are well aware of and expect to take advantage of in the future.

Operator

The next question comes from Jeremy Tonet of JPMorgan. Please go ahead.

Speaker 8

Hi, good morning.

Speaker 2

Good morning.

Speaker 8

Just wanted to kind of expand on the LNG outlook, I guess, as well. With the moratorium in the U. S, just wondering your thoughts, I guess, on positioning for West Coast Canada there, future growth, and possible expansion on those facilities. It seems like with the cost put into those facilities overall, economies of scale would argue for further expansions. Just wondering how you see North American LNG export outlook going forward and the impact on TRP?

Speaker 2

I'll start at a high level there, Jeremy, and then I'll ask Stan to provide a little bit more detail. Look, we're the only gas transmission company that has a dominant footprint in all three countries and we have access to all shores of North America. So LNG demand growth is as our customer is going to be a big source of our growth going forward. You're right, brownfield economics typically beat greenfield economics all day long. So, where we are already serving LNG export, we see opportunities for us to grow throughput.

Speaker 2

And Stan, over to you for a little bit more detail.

Speaker 4

Yes. Hey, Jeremy, just to maybe double click on that. From a macro perspective, we're exporting around 14 Bcf of LNG from the U. S. Today.

Speaker 4

We see that growing to somewhere north of 30 Bcf by the end of the decade across all of North America with maybe 3 to 4 Bcf coming from Canada and 2 Bcf to 3 Bcf coming from Mexico. But you also referenced the moratorium or the stay and maybe just a couple of points on it. First of all, the stay impacts about 20 or so projects that are currently in the approval queue, but it does not impact projects that are already approved. So projects like our Gilles project, which is slated for in service later this year and our East Lateral Express project, which is slated for in service in 2025 are not going to be impacted. But today, our assets transport about 25% of the delivery to LNG terminals and those two projects are just going to further enhance that.

Speaker 4

Bigger picture though, what I would note is, it really is the diversity of our pipeline network across North America, which is one of our biggest strengths. And we're going to continue to see strong demand for our assets across the LDC, power generation and LNG export sector. And should a pause in LNG exports in the U. S. Be extended for a significant period of time, The geographical diversity that our pipelines afford us may well see opportunities both in NextScale and Canada.

Speaker 4

And as a matter of fact, we heard the Canadian Energy Minister Wilkinson expressed that exact sentiment just a few weeks ago.

Speaker 8

Got it. That's very helpful. And Dan, maybe kind of expanding on the U. S. Gas pipe network outlook.

Speaker 8

Just wondering, as far as future growth is concerned, where do you see I guess more of the growth coming from? Is it just more of these kind of bolt ons? Or do you see the potential for anything like bigger brownfield expansions or even greenfield expansions here just given increased peaking needs for natural gas across the U. S?

Speaker 4

Again, given the our best in class footprint, we're going to leverage our in corridor expansions to the greatest degree possible. So I don't see us doing a lot of greenfield expansions, It makes it more challenging on the permitting and the construction front. But I continue to point out to you the growth in the power generation sector And our Heartland project that we just announced today is another example of that where coal fired power generation is retiring, demand for energy continues to grow and our assets are uniquely positioned to fill that gap. So growth in power generation, growth in LNG exports longer term as well as increased connectivity with our LDC customers I think are going to be the main drivers for our U. S.

Speaker 4

Pipes.

Speaker 8

Got it. Thank you for that. I'll leave it there. Thank you.

Operator

The next question comes from Linda Ezergailz with TD Cowen. Please go ahead.

Speaker 9

Thank you. Just wondering if you can give us any update on how you're progressing on your productivity and cost effectiveness initiatives in your natural gas business? Where are you at in terms of identifying opportunities and implementing them?

Speaker 4

Yes. Hi Linda, this is Stan. I think you're referring to what we call our project focus initiative. And you may recall that that is all about creating value by fundamentally changing the way we do our work around safety, operational excellence and cost and capital discipline. Last year, we announced a target run rate of about $750,000,000 of efficiencies that would be realized by the end of 2025.

Speaker 4

You could think of that as being made up of things like capital reductions, expense reductions and revenue enhancements. At the end of last year, we actually captured and implemented run rate efficiencies of about $230,000,000 We expect to generate another $270,000,000 of efficiencies by the end of this year. So we'll have a cumulative amount of around $500,000,000 and the balance of the $750,000,000 will be generated in 2025. So I would say things are progressing nicely, and according to plan.

Speaker 9

Thank you. And maybe just as a bigger picture follow-up. Realizing that you've got a lot of priorities, I'm just wondering if you could also give us a regulatory update in terms of how you're thinking about any sort of significant natural gas pipeline filings, any sort of settlements? And with the backdrop of the Chevron doctrine being challenged as well, maybe influencing how you approach your regulatory relationships, I mean, it's been pretty foundational for the agencies being able to interpret any sort of ambiguous statutes in the U. S.

Speaker 9

And that the courts would defer to that? And if that gets discarded or clawed back, just any sort of early thoughts on how that might shift your approach to managing your regulatory relationships and strategies?

Speaker 2

Linda, I'll start and pass it over to Stan for a bit more detail. Just sort of bigger picture pulling up to 40,000 feet, we've had very good success getting permits for our projects. As a matter of fact, we recently received FERC approval for one of our projects in Virginia about 4 months early. So it's going to allow us to actually accelerate a little bit of our capital spend, which will generate incremental EBITDA earlier than we had expected and that's going to improve the IRR of the project. As a general matter, as you know, we're spending more capital on maintenance because the utilization of our assets is so high.

Speaker 2

So we are as a strategy in order to minimize regulatory lag in the United States going to be continuing to file rate cases more frequently wherever we are allowed to do that. And of course, we are going to be proceeding in that regard on Colombia in 2025. With respect to the Chevron doctrine and some of the other details, I'll kick it over to Stan.

Speaker 4

Yes, Linda, I would maybe preface my remarks by saying that given that we are making as an industry and a company long term large dollar capital investments in currently needed energy infrastructure, predictability and stability in the regulatory, judicial and legislative process is really critical for us. I really don't see, absent there being something unforeseen, any drastic changes in terms of how we file and prosecute rate cases for example, due to the Chevron doctrine. And that you may recall that in the U. S. Most of our rate cases tend to be settled with our customers rather than litigated, nor do I see there being any significant changes with respect to how we operate the pipe.

Speaker 4

Given that this could lead to more of the tedious outcomes, we may have to build in longer lead times for originating and constructing our projects. But at the end of the day, we need to wait and see what if anything comes out of the Supreme Court decision and then we'll respond to those changes accordingly. Thank you.

Operator

The next question comes from Ben Pham of BMO. Please go ahead.

Speaker 10

Hi, thanks. Good morning. Maybe to go back on the asset sale program, you mentioned more positive backdrop year to date versus last year. I'm wondering what's your willingness then to

Speaker 2

maybe perhaps

Speaker 10

execute on more than $3,000,000,000 this year and just push the leverage down even more?

Speaker 2

Ben, we have an openness to that, but it's going to be on the basis of compelling valuations in our various processes. Given that we want to make sure that we achieve our $3,000,000,000 target for 2024. We've got many conversations going on. Not only is there competition within processes, but there's competition between processes. So to the extent, we could see some compelling valuations, we would be open to considering exceeding the $3,000,000,000 target.

Speaker 10

Okay. Got it. And then maybe a question on liquids performance this year and going forward, just given the better result, I guess, for $2,300,000,000 or so. But doesn't that warrant or just more directionally maybe a bit more upside ties to your middle decade EBITDA guidance for the Liquids segment?

Speaker 6

So Ben, this is Bevan. Thanks for the question. As I've mentioned earlier, we did we were able to accelerate a little bit of the growth that we were anticipating in 'twenty four back into 'twenty three. I do want to temper our outlook for Q1 of this year. As you know, we have a marketing affiliate that optimizes the utilization of our Gulf Coast system primarily.

Speaker 6

And we have some basically accounting differences between physical and financial trades that we think will have a bit of a headwind here in Q1. So I'd just temper our results here in the near term. We want to reaffirm our outlook of that 2% to 3% long term growth. That is we believe we'll be able to underwrite that growth consistently and that's what we want to be as a very predictable deliverable of deliverer of EBITDA growth for our shareholders.

Speaker 10

Okay, great. Thanks for tying that together. Thank you.

Operator

The next question comes from Brian Reynolds of UBS. Please go ahead.

Speaker 11

Hi, good morning, everyone. Maybe to follow-up on some of the soft pull questions as it relates to the future debt sounds like that wasn't originally in the guide because you had to meet some performance metrics. Just kind of curious if we could see any evolution, whether it's a couple of $100,000,000 here or anything more material as it relates to that ultimate debt issuance to TC from Southco? Thanks.

Speaker 6

Yes. So Brian, this is Bevan again. So first off, we are going to come out with an investment grade rating. Post the successful shareholder vote, we'll be going out to the market, which fortunately, we've seen some improvement in the debt capital markets here over since the announcement of the spin back in July. We'll look to set up that capital structure that allows us underwrite the future performance.

Speaker 6

And if we're able

Speaker 1

to

Speaker 3

have

Speaker 6

we have to balance the needs of both TC and South Bo as we divide the dividend and the debt going forward and we'll optimize that for our shareholders. But right now, I would say it's more constructive than we would have thought last July. So that's a good thing for the outlook of both entities.

Speaker 3

And Brian, it's Joel here. I'll just add to that too. And what we showed you at Investor Day back in November is that just given the current rate environment, the proceeds that we'll receive from South Bow, whether it's around $8,000,000,000 that we have the ability to buy back some of our debt at a discount. So we expect to take out more than what the proceeds are from South Bow given that our debt would be trading at a discount.

Speaker 11

Great. Super helpful. Sounds like more to come. On Northern Border, switching to the gas side, nat gas constraints seem to get into a pretty tough level at this point with expansion really needed soon. So I'm just curious if you can give us an update on Bison Express.

Speaker 11

And ultimately, how does that flow through its potential cost implications as it relates to your $6,000,000,000 to $7,000,000,000 outlook? You guys are very committed to that. Kind of how does the basin need for expansion intertwine with your commitment to that $6,000,000,000 to $7,000,000,000 outlook? Thanks.

Speaker 4

Yes. I would just say that our Bison Express project is progressing as planned. We have every expectation of bringing that in service on time, on budget. As you pointed out, there is a need for additional egress capacity out of the basin. These dollars are included in our $6,000,000,000 capital plan going forward and we have every expectation on executing on that accordingly.

Operator

The next question comes from Robert Kwan of RBC Capital Markets. Please go ahead.

Speaker 12

Thank you. Good morning. On the back of the sanctioning of Heartland and as it relates to the placeholder CapEx in your plan through 2026, can you just talk about what segments and what types of projects would be the largest contributors, especially the 2020 6 bucket. And with that comment, just specifically building on Stand Dancer, if the pause on the non FDA export permits is made more permanent, how much of that grade bucket is at risk?

Speaker 2

It's Francois. I'll take that one, Robert. When you think about our capital stack, not just in 2026, but as a general matter, think of about $2,000,000,000 a year of recoverable maintenance capital across our 3 pipeline systems would be one contributor. Secondly, dollars 800,000,000 or $900,000,000 a year on average of Bruce Power capital for the major component replacement program as well as the Project 2,030 efficiencies on the nonreactor side of the plant. And then predominantly, growth capital across our 3 natural gas footprints.

Speaker 2

When you look at our projects and the impact of the pause on the capital stack, As Dan mentioned, one of our projects, Gilles, could be impacted by any meaningful delays in its sanctioning. But these are small dollars, low 100 of 1,000,000. And so as we mentioned at our Investor Day in November, our capital is pretty much spoken for through 'twenty six and now with the Heartland Project 'twenty seven. We haven't increased the aggregate limits. In November, we included some of the unsanctioned capital in our disclosures, both the MCR4 at Bruce and Heartland were in November in the unsanctioned or as yet to be sanctioned growth.

Speaker 2

And we remain steadfast in our focus on maintaining our capital spend, not just within the 6% to 7%, but frankly, to the lower end of that range. From a value creation standpoint, the prize there is if we execute on plan for roughly $6,000,000,000 a year and it might be plus or minus $100,000,000 or $200,000,000 in any given year, Then we have excess capital to either accelerate deleveraging or to ultimately proceed with share buybacks. We're building in that optionality on an annual basis, which is something that we have not done in the past. So from my perspective, if for some reason a project an individual project is deferred and we end up at 5.5 instead of 6 for example, We still have good uses for that capital in accelerating our deleveraging and ultimately doing share buybacks because those are value accretive to

Speaker 4

our shareholders.

Speaker 12

Got it. Thank you. And if I can just finish with the interplay between the 4.75 times target and the comments on executing the asset sale program in a manner that is positive to shareholder value or put differently that you're not going to fire sale assets. If the markets work against you, how are you thinking about that target, particularly as well into 2025, which is kind of just a bridge year set half roughly of Southeast Gateway and really the goal being 2026. So how do you, like I said, think about that target in 2025 as well?

Speaker 2

Yes. So good question, Robert. Based on conversations we're having and how our processes are going to date, we're very confident on achieving the $3,000,000,000 number in 2024, and we are steadfast in achieving that amount of deleveraging. It's a high priority for us to get to below a 4.75 percent upper limit by the end of 2024. With respect to 2025, we would need either incremental divestitures or incremental EBITDA, about $400,000,000 of incremental EBITDA, in order to stay below that 4.75% level.

Speaker 2

And to the extent as was asked previously, we have an opportunity to perhaps upsize the program in 2024, we'll consider that. We also feel that we can get to the $3,000,000,000 number without transacting in Mexico in 2024. But as we said, we're focused on reducing our exposure in Mexico over the next 2 or 3 years to get to that 10% to 12% of consolidated EBITDA level. So you could look to us pulling on some of those levers, including how successful our efficiency program is around revenue increases and cost reductions to fill any gaps that we see in 2025 and beyond.

Speaker 12

Okay. That's great. Thank you.

Speaker 13

You're welcome.

Operator

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

Speaker 14

Hey, good morning and congratulations on all the accomplishments in 2023. I had a quick follow-up on the liquids side. I wondered if you could give an update on where you are with Keystone in returning that asset to its previous level of pressure?

Speaker 6

Yes. Robert, this is Evan. So we've had, as I mentioned earlier, outstanding performance operationally here year over year. We continue to increase our system operating factor. We achieved record levels here at the end of the year and early this year.

Speaker 6

That is only as a result of our prime focus on operating our percent of our system to date. That will be all complete prior to any spin transaction. In doing those in line inspections as well as all of the physical digs over 60 digs this past year to do confirmation of anything that we do see in areas of potential concern. We have found no potential incident or issues with the integrity of our system. So our confidence has increased significantly here since undertaking that work.

Speaker 6

We're working very closely with both our regulators, both PHMSA in the United States as well as the CER. We've managed to address all the issues so far that they have raised. But their determination is up to them as to returning the system to its original operating pressure. That said, because of our operational performance, we were able to deliver all of our contract capacity and we've been able to move spot batches as well. So our operational excellence is allowing us to continue to deliver strong performance.

Speaker 14

Okay. Thanks for that detailed answer Bevin. I just wanted to move on to asset development and the regulatory side, specifically on cost sharing on development costs before projects are permitted. I wondered if you've what your approach there is to cost sharing might be in light of the high utilization of assets across the industry and just the tough permitting environment. And maybe specifically you can address what type of progress you're making with government funding for predevelopment on key projects in Ontario, such as the Ontario pump storage?

Speaker 2

Thanks, Robert. I'll start with a very high level. I'll ask Stan to provide some context on cost sharing in the U. S. And then Ansley can touch on our Power and Energy Solutions projects in Ontario.

Speaker 2

And the only comment I wanted to make before passing it over is that just to remind you that in Canada, we have mechanisms to have reimbursement of development costs or inclusion of development costs has spent in our tariff structure. And so the notion of cost sharing for development is really more of a U. S. Question rather than one in Canada. So over to you Stan and then over to Ansley.

Speaker 4

Yes. Good morning, Robert. Again, I would reiterate, first of all, that the progress in all of our projects is going really, really well. This year, we're on track to put 3 projects in service. We put our Virginia Electrification project in service on time and on budget a couple of weeks ago.

Speaker 4

Later this summer, we'll put our Gilles project into service. And then assuming we get a timely and favorable rehearing order on GTN, we'll put the balance of that project in service by the end of the year. With respect to things like risk sharing mechanisms, we've been doing that for a very, very long time in the U. S. As a matter of fact, many if not almost all of our projects have some sort of a cost sharing that's usually around a fifty-fifty split between us and our customers should we have cost overruns.

Speaker 4

We also have other protections where in certain instances, should a customer not reach FID they will reimburse us for 100% of our development costs. That's something that we've been doing for a long time just as part of our DNA. The regulatory front with respect to building projects has gotten a little bit more complex. But I think we have the skills and the talent to navigate that. And I see us continuing to originate and build new projects within this 5 to 7 times build multiple and within our 6 $1,000,000,000 build forward annual capital spend.

Speaker 15

Hi, Robert. It's Ansley. In the Power and Energy Solutions business, our near term focus is really on nuclear and pumped hydro. And a big part of the reason for that is the policy support that we see for both of those 2 sectors, particularly in Ontario. And so we are in discussions with the province on cost recovery agreements for those projects.

Speaker 15

As we progress them, we will remain very disciplined with respect to our capital that we would put at risk. And so we do anticipate, advancing those agreements in the near term, both with respect to the work that we have begun on Bruce Power, a nuclear new build Bruce C at that site as well as our Ontario pumped storage project.

Speaker 14

Okay. Thanks, everyone.

Operator

The next question comes from Patrick Kenny of National Bank Financial. Please go ahead.

Speaker 16

Thank you. Yes, good morning. Just on CGL and these potential cost recoveries from contractors, not sure if you can comment on or confirm if all claims have been filed with the courts at this point, what the total amount of all claims might look like? And also if you've assumed any successful litigation or settlements within your 4.75 leverage target by year end? Or if we should be thinking about these potential recoveries being 2025 at the earliest?

Speaker 13

Yes, sure. It's Greg Grant here. I'll go first and then Joel can talk to the $475,000,000 But first just giving you gave me the mic. I'm going to thank the team again. I think this is a monumental effort that the team was able to achieve here on CGL.

Speaker 13

It took everybody operations, commercial, project execution, stakeholder, team effort to achieve the readiness by the end of the year. So that $200,000,000 was quite important to the team. As you think about moving forward into 2024, safe execution is the mandate and what we're going to continue to focus on as we work through some of the reclamation work. We're not really going to get into talking about individual claims or what that looks like. I think what I would say is we will vigorously defend the claims, but also in pursuing cost recoveries, which we do expect net recoveries.

Speaker 13

And just highlight, we remain on track to the $14,500,000,000

Speaker 3

Yes. And Pat, it's Joel here. Just with respect to the net recoveries that Greg has highlighted, we're not going to give you a dollar amount on that, but we do factor that into our funding plan here as it relates to this year.

Speaker 16

Okay, great. Thanks for that. And then just on NGTL, wondering if you might have an update on where you're at with rolling over the 5 year revenue requirement settlement. And I know you can't comment too much either on what a potential minority stake in NGTL might look like. But I'm just curious if having the new revenue settlement in place represents any sort of precursor to executing on any type of ownership transaction with NGTL?

Speaker 13

Sure. Greg here. I'll talk about this settlement. Just as a reminder, the settlement is in place until the end of 2024. Discussions are going well with customers.

Speaker 13

I can't talk too much around the actual settlement itself, but you've seen the system and the health of the basin here recently. We've hit all time highs on NGTL here in January, continuing to see significant usage in decade level highs heading out of mainline. So quite happy with the health of the basin. I think the conversations are going well with the customers. We'll be looking probably not until mid year before we start to get closer to a settlement, but we expect a settlement with customers here later this year where we

Speaker 2

can comment more. And with respect to the impact of the settlement or on the timing of any potential minority interest sale on NGTL, Pat, We obviously have it's public information that our settlement expires at the end of the year that we are working towards a renewal of that settlement with our customers. And we have in our own minds a view as to what a fair outcome is. And we will obviously factor that into our view of fairness of any transaction for minority interest in NGTL.

Speaker 16

Okay. That's great. I appreciate your comments. Thank you.

Speaker 2

Thanks, Pat.

Operator

The next question comes from Olivia Haverty of Goldman Sachs. Please go ahead.

Speaker 17

Hi, good morning. Thank you for taking our questions. Wondering if we could just start on Bruce. Availability continues to be strong, though I acknowledge the maintenance heavy 4th quarter. Is there any planned maintenance you can point us to for 2024?

Speaker 17

And more broadly, following the successful and accelerated MCR on Unit 6, are there any lessons learned that you can apply to future MCRs? And how much conservatism would you say is baked into the MCR timelines?

Speaker 15

Hi, Olivia. It's Ansley. I'll take that question. So we definitely did see strong performance from Bruce Power last year across both the operating units as well as with the performance of Unit 6 MCR program. Heading into 2024, we can expect availability to be similar to what we've seen in 2023.

Speaker 15

So we expect continued strong performance. There will be regular planned outages as we also saw 2023, but that is factored into that guidance. From a MCR perspective, we certainly have taken many lessons learned from the Unit 6 MCR project and have applied them to the planning and the execution of the future units. So we're currently in execution on Unit 3 and we're seeing some of the benefits of those lessons learned already. On Unit 4, it will be a similar story.

Speaker 15

Beyond just the lessons at Bruce Power, we have also certainly engaged with industry and have continued to apply lessons learned from outside of Bruce Power as well. Maybe the last thing I would highlight with respect to Bruce Power performance for 2024, we do expect our annual price increase to come in April, and so we'll share more at that point in time.

Speaker 17

Okay. Thank you for all the color there. And then I guess just more broadly on the 2024 EBITDA guidance, what is the largest driver of potential variability? And maybe you could sensitize what could drive performance to the high end versus the low end of the target growth range?

Speaker 2

Thanks for that question, Olivia. We don't take a meaningful amount of commodity price or volumetric risk. So essentially, the drivers of performance for us are operational excellence through strong availability of our assets and bringing in our projects on time and on budget. So if we perform according to plan, we will fall within that range. And to the extent we find more efficiencies or increased availability in operations, you could see us move to the upper end, or as you saw in 2023, above the upper end of the range of our guidance.

Speaker 2

And then the other factor, of course, is on delivering on our projects on time.

Speaker 17

Got it. Appreciate the color there. Thanks.

Speaker 2

Thank you.

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 1

Yes, thank you, and thanks, everyone, for participating morning. As noted, if you have any additional questions or we weren't able to get through the entirety of the questions late today, please contact the Investor Relations team. We're always happy to help. We very much appreciate your interest here in TC Energy and look forward to our next update.

Speaker 3

So thank you and have a great day.

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Earnings Conference Call
TC Energy Q4 2023
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