TC Energy Corporation (NYSE:TRP) Q4 2023 Earnings Call Transcript
TC Energy Corporation (NYSE:TRP) Q4 2023 Earnings Call Transcript February 16, 2024
TC Energy Corporation isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by. This is the conference operator. Welcome to the TC Energy Fourth 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 Instructions] I would now like to turn the conference over to Gavin Wylie, Vice President, Investor Relations. Please go ahead.
Gavin Wylie: Thanks very much, and good morning. I'd like to welcome you to TC Energy's 2023 fourth quarter 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. Following their remarks, we'll take questions from the investment community. We ask that you limit yourself to two questions, and if you're a member of the media, please contact our media team.
Before 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 US Securities 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. With that, I'll turn the call over to Francois.
Francois Poirier: Thanks, Gavin, and good morning, everyone. At the beginning of 2023, we set out to deliver on three 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 two standalone investment grade companies with greater flexibility to implement distinct strategies to unlock their full potential and deliver incremental long-term shareholder value.
Our focus on project execution resulted in placing approximately $5.3 billion 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 $5.3 billion. 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 reaffirmed 2024 comparable EBITDA outlook to be between $11.2 billion and $11.5 billion.
Now, after five years of construction and 55 million 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. 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 million 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 $14.5 billion. 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 first 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. We reached a milestone in the fourth quarter when we began offshore pipe installation for the project. We've now completed 100% 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 $4.5 billion as we continue to see benefits from sanctioning this project under our enhanced capital allocation governance process that included a Class 3 estimate prior to our final investment decision. Now, while our utility-like assets do not carry any material of volumetric or commodity price risk, continued high utilizations throughout the fourth quarter continue to reflect volume growth and the incremental demand for our services that underpins our future investments. 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 US, 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 pipeline's daily throughput was also higher, averaging 2.7 Bcf per day, which is up 30% compared with the fourth quarter 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. And our Alberta cogen power fleet achieved 99% availability in the fourth 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 fourth quarter and we have now received the ISO's approval last week. Unit 4 will be the third of six units in the Bruce MCR program where we are extending its asset life for the next 40 years. This exceptional emission-less 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 Dafoe 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 eight years, Van will be instrumental in leading South Bow's financial and strategic affairs.
Additionally, Lori Muratta was named as incoming senior VP and General Counsel. Lori will oversee South Bow'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.
Joel Hunter: Thanks, Francois. Strong operational performance during the fourth 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 million incentive payment upon meeting certain project milestones on Coastal GasLink. This amount was settled through a cash distribution on February 12th, 2024, and it was recognized as income from equity investments in our consolidated income statement for the year ended December 31st, 2023. I'll note that even when excluding the $200 million incentive payment, we delivered approximately 8% growth in comparable EBITDA versus fourth quarter 2022.
As Francois mentioned, our base business performed exceptionally well during the fourth quarter and throughout 2023, our team safely placed approximately $5.3 billion 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 interest following the Columbia sale in 2023. For 2024, we expect comparable EBITDA to be between $11.2 billion and $11.5 billion, 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 billion of new projects expected to be placed in service this year.
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 billion to $8.5 billion. 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 US, largely due to assets placed in service in 2023, and projects we expect to place in service in 2024, including Gillis Access and GTN XPress.
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. Without taking into account impacts related to the proposed spin-off, comparable EBITDA from the Liquids Pipelines business is expected to be consistent with 2023. Consistent with what we showed in 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 $11.2 billion to $11.5 billion. 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.
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 in Investor Day. These projects do not change our commitment to limiting net capital spending to $6 billion to $7 billion with a bias to the lower end in 2025 and beyond. Looking to the right hand side of this slide, South Bow's long-term outlook also remains consistent with what Bevin showed at Investor Day. The South Bow 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 spinoff, subject to a successful shareholder vote.
Anticipated proceeds from the senior and subordinated debt issued at South Bow will be used to repay approximately $8 billion 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 first quarter 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 a dividend which is foundational to the enduring value proposition of TC Energy. Thank you and I'll pass the call back to Francois.
Francois Poirier: 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. First, 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. Second, we will remain focused on project execution, delivering on time and on budget, including Bruce Power’s MCR 3 and advancing Southeast Gateway’s mechanical completion by the end of 2024. 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 $11.2 billion to $11.5 billion 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 session. [Operator Instructions] The first question comes from Rob Hope of Scotiabank. Please go ahead.
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