TC Energy (TRP) Sells Pipeline Stake to GIP in a $3.9B Deal
TC Energy Corporation TRP signed an agreement to sell a 40% interest in its Columbia Gas Transmission and Columbia Gulf Transmission systems to Global Infrastructure Partners (“GIP”). The deal involves forming a new joint venture for a cash sum of C$5.2 billion (US$3.9 billion). This strategic move is expected to accelerate TC Energy's deleveraging process and unlock incremental value through a long-term partnership with GIP, one of the world's leading infrastructure investors.
Background of the Deal
The decision to divest a portion of its ownership in the Columbia Gas and Columbia Gulf pipelines is part of TRP’s long-term plan to raise capital and reduce debt. It also aligns with the company's strategy to focus on new investment opportunities and secure its position in the evolving energy market.
Deal Details
The aforementioned agreement is part of TC Energy's previously stated plan to divest and raise capital while reducing debt. The deal is anticipated to close in the fourth quarter of 2023. The sale will provide the necessary funds for investing in other projects, including the Coastal GasLink pipeline. The agreement with GIP is expected to close by November, with the latter acquiring a 40% interest in the pipelines.
Following the closure of the deal, GIP will be responsible for 40% of the annual maintenance, modernization and growth capital investments, totaling around C$1.3 billion (US$1 billion) annually for the next three years. Despite the sale, TC Energy will continue to operate both systems in the joint venture, focusing on optimizing value through safe operations and service reliability.
Enhancing North American Natural Gas Network
The Columbia Gas and Columbia Gulf pipelines are extensive natural gas infrastructure networks, spanning more than 15,000 miles across North America. Together, they meet a significant portion of the daily U.S. natural gas demand, accounting for around 20% of the country's liquefied natural gas export supply. These systems play a crucial role in supporting the transition toward lower-emission energy sources, underpinned by strong long-term natural gas fundamentals and a rate-regulated commercial framework.
Strengthening the Energy Transition
As the global energy landscape evolves, TC Energy and GIP are committed to supporting the transition to sustainable energy sources. Natural gas continues to play a significant role in this transition, and the partnership's collective strength will facilitate the origination and execution of vital natural gas projects. By connecting the largest and lowest-cost natural gas basin to key demand centers and export markets, the Columbia Gas and Columbia Gulf pipelines will continue to play a significant role in the journey toward cleaner energy solutions.
Future Expansion Plans
With the proceeds from the sale, TC Energy is well positioned to focus on other strategic projects. One such endeavor is the Coastal GasLink pipeline, a major initiative that will play a crucial role in Canada's energy infrastructure. The company's commitment to deleveraging, combined with its disciplined capital allocation, will ensure a sustainable growth trajectory and maintain TRP’s status as a prominent player in the energy sector.
Conclusion
The agreement between TC Energy and GIP marks a milestone in the energy industry. TC Energy, along with GIP, is poised to explore new investment opportunities while maintaining operational excellence in its core assets. The joint venture aligns with the broader goal of supporting the energy transition. It also underscores the pivotal role that natural gas will continue to play in the sustainable energy future.
Zacks Rank and Other Key Picks
Currently, TRP carries a Zacks Rank #2 (Buy).
Some other top-ranked stocks for investors interested in the energy sector are Evolution Petroleum EPM, sporting a Zacks Rank #1 (Strong Buy), and Murphy USA MUSA and NGL Energy Partners NGL, both carrying a Zacks Rank #2 at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Evolution Petroleum is worth approximately $273.80 million. EPM currently pays a dividend of 48 cents per share, or 5.38% on an annual basis.
The company currently has a forward P/E ratio of 7.62. In comparison, its industry has an average forward P/E of 11.90, which means EPM is trading at a discount to the group.
Murphy USA is valued at around $6.93 billion. In the past year, its shares have risen 17.5%.
MUSA currently pays a dividend of $1.52 per share, or 0.48% on an annual basis. Its payout ratio currently sits at 6% of earnings.
NGL Energy Partners is valued at around $497.37 million. In the past year, its units have risen 167.4%.
The partnership currently has a forward P/E ratio of 4.33. In comparison, its industry has an average forward P/E of 15.80, which means NGL is trading at a discount to the group.
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