TC Energy reports strong third quarter 2022 results
TC Energy Corporation (TSX, NYSE: TRP) (TC Energy or the Company) released its third quarter results today, reporting continued strong performance. “Our portfolio remains resilient despite the economic headwinds facing the broader market,” said TC Energy's President and Chief Executive Officer, François Poirier
CALGARY, Alberta, Nov. 09, 2022 (GLOBE NEWSWIRE) -- TC Energy Corporation (TSX, NYSE: TRP) (TC Energy or the Company) released its third quarter results today, reporting continued strong performance. “Our portfolio remains resilient despite the economic headwinds facing the broader market,” said TC Energy's President and Chief Executive Officer, François Poirier. “Demand for our services across our North American portfolio remains high and we continue to see strong utilization, availability, and overall asset performance. Comparable EBITDA1 was 10 per cent higher and segmented earnings 16 per cent higher relative to third quarter 2021. As a result, we have increased our 2022 comparable EBITDA outlook which is now expected to be approximately four per cent higher than 2021.”
“We remain opportunity rich with a portfolio of $34 billion in fully sanctioned secured capital projects that will support long-term sustainable comparable EBITDA growth and an expected annual dividend growth rate of three to five per cent. Along with increased cash flows, capital rotation will increase in its prominence to fund accretive growth opportunities, accelerate our deleveraging priorities and deliver incremental value to our shareholders."
Highlights
(All financial figures are unaudited and in Canadian dollars unless otherwise noted)
2022 Report on Sustainability, ESG Data Sheet and Reconciliation Action Plan Update and other energy transition highlights
1 Includes Capital expenditures and Contributions to equity investments.
CEO Message
In the third quarter of 2022 we continued to demonstrate the resiliency of our business in the face of rising inflation, interest rates and commodity price volatility. As we have demonstrated through many economic cycles over the past two decades, the demand for our services remains high and is largely insulated from volatility given approximately 95 per cent of our business is either rate-regulated or underpinned by long-term contracts. As a result, our comparable EBITDA was 10 per cent higher than 2021 and we have increased our comparable EBITDA outlook for 2022. By utilizing our synergistic footprint, we continue to develop solutions to move, generate and store the energy North America relies on in a secure and increasingly sustainable way.
We expect our fully sanctioned secured capital program to deliver a 2021-2026 comparable EBITDA compounded annual growth rate of six per cent that will support our expected three to five per cent annual dividend growth, funding of capital commitments and reduction of our overall leverage metrics. Our sanctioned capital program will be funded through a combination of growing cash flows, incremental long-term debt and hybrid security capacity, commercial paper, and our DRP that is expected to be in place through the dividend declarations for the quarter ending June 30, 2023. Under our current outlook and without any proceeds from asset sales, we expect to achieve our deleveraging target by 2026.
Being opportunity rich means we expect to continue to sanction additional high-quality growth projects. Capital rotation will be utilized to fund these accretive opportunities and bring forward our deleveraging target from 2026. We intend to execute the divestiture program through 2023, with proceeds expected to be in excess of $5 billion through the potential sale of discrete assets and/or minority interests. We will consider a multitude of factors in determining where to rotate capital including valuation, pro forma impact on per share and credit metrics, longer-term portfolio migration, simplicity of corporate structure and the impact on our ability to achieve our sustainability goals. Any potential impact on our growth trajectory out to 2026 will be determined by the timing and proceeds of assets monetized, along with the contribution from projects yet to be sanctioned. However, the additional financial flexibility created through this process will enhance our strategic positioning to deliver shareholder value over the medium to long term. We expect this to further support our dividend growth guidance of three to five per cent per annum.
Our industry-leading secured capital program is now $34 billion and we expect to sanction approximately $5 billion of projects per year throughout the decade. We have added the US$0.4 billion Gillis Access Project, a 1.5 Bcf/d header system that will connect growing supply from the Haynesville basin to Louisiana markets including the rapidly expanding Louisiana LNG export market. The project has an anticipated in-service date of 2024. Additionally, we sanctioned the $0.6 billion VNBR project on our NGTL System that will use non-emitting electric compression to ensure connectivity between migrating supply in the WCSB and key demand markets. Importantly, our secured capital program is largely underpinned by long-term, take-or-pay contracts and/or regulated business models that support the resilience and sustainable growth of our future EBITDA.
Furthermore, we executed a first-of-its-kind strategic alliance with the CFE in Mexico to jointly develop the US$4.5 billion Southeast Gateway pipeline. The agreement further demonstrates how we are leveraging our differentiated North American strategy to deliver energy solutions across our extensive footprint. Once in service in mid-2025, the Southeast Gateway pipeline is expected to benefit millions of people through increased access to clean, reliable and affordable energy. In order to support execution of this accretive project, we issued $1.8 billion in common equity to provide certainty around our go-forward funding plan. In addition, we resolved international arbitrations with the CFE on the Villa de Reyes and Tula pipeline projects allowing us to earn a full return on and of all previous capital invested.
Looking forward, we will maintain our focus on safety, operational excellence, and executing our industry-leading growth portfolio. We intend to expand, extend and modernize our existing natural gas pipeline network while reducing our GHG emissions intensity and providing customer-driven low-carbon energy solutions. Our consistent strategy has proven resilient through multiple economic cycles delivering 22 consecutive years of dividend growth and we remain confident in our ability to do so going forward.
OUTLOOK
Comparable EBITDA and comparable earnings
Consolidated capital spending and equity investments
NOTABLE RECENT DEVELOPMENTS INCLUDE:
Canadian Natural Gas Pipelines
The revised project agreements incorporate a new cost estimate for the project of $11.2 billion, which reflects an increase from the original project cost estimate due to scope increases and the impacts of COVID-19, weather and other events outside of Coastal GasLink LP’s control. Current market conditions, including inflationary impacts on labour costs, could result in final project costs that are higher than this new estimate. Mechanical in-service is expected to be reached by the end of 2023. Commercial in-service of the Coastal GasLink pipeline will occur after completion of commissioning the pipeline.
The revised $11.2 billion project cost will be funded in part by existing project-level credit facilities with a revised total capacity of $8.4 billion following an expansion of $1.6 billion. Required project equity of $2.8 billion includes an additional $1.9 billion equity contribution from TC Energy, payable in monthly installments from August 2022 to February 2023 that does not result in a change to our 35 per cent ownership. Additional equity financing required to fund construction of the pipeline will initially be financed through a subordinated loan agreement between TC Energy and Coastal GasLink LP which was originally put in place in fourth quarter 2021 and was amended on July 28, 2022. Following these amendments, draws by Coastal GasLink LP will be provided through an interest-bearing loan, subject to a floating market-based interest rate, which will be repaid with funds from equity contributions to the partnership by the Coastal GasLink LP partners, including us, subsequent to the in-service date of the Coastal GasLink pipeline when final project costs are determined. Committed capacity under this subordinated loan agreement between TC Energy and Coastal GasLink LP has been and will continue to be stepped down over time. At September 30, 2022, total available capacity under the subordinated loan agreement was $1.8 billion with an outstanding balance of $250 million. We currently estimate our portion of the equity contributions to Coastal GasLink LP over the project life to be approximately $2.1 billion, including the $1.9 billion equity contribution noted above.
On March 9, 2022, we announced the signing of option agreements to sell a 10 per cent equity interest in Coastal GasLink LP to Indigenous communities across the project corridor. The opportunity to become business partners through equity ownership was made available to all 20 Nations holding existing agreements with Coastal GasLink LP. The Nations have established two entities that together currently represent 16 Indigenous communities that have confirmed their support for the option agreements. The equity option is exercisable after commercial in-service of the pipeline, subject to customary regulatory approvals and consents, including the consent of LNG Canada.
The Coastal GasLink pipeline project is approximately 75 per cent complete. The entire route has been cleared, grading is more than 84 per cent complete and approximately 400 km of pipeline has been backfilled with reclamation activities underway in many areas.
U.S. Natural Gas Pipelines
Mexico Natural Gas Pipelines
In connection with the strategic alliance, we reached an FID to proceed and build the Southeast Gateway pipeline, a 1.3 Bcf/d, 715 km offshore natural gas pipeline to serve the southeast region of Mexico with an expected in-service by mid-2025 and an estimated project cost of US$4.5 billion.
The lateral section of the Villa de Reyes pipeline was mechanically completed in second quarter 2022, while VdR North and Tula East were placed into commercial service in third quarter 2022. We are working with the CFE, and expect the lateral and the south sections of the Villa de Reyes pipeline to begin commercial service in 2023. Additionally, we have agreed to jointly develop and complete the central segment of the Tula pipeline, subject to an FID.
Subject to regulatory approvals from Mexico’s economic competition commission and the Regulatory Energy Commission, the strategic alliance provides the CFE with the ability to hold an equity interest in TGNH, which is conditional upon the CFE contributing capital, acquiring land and supporting permitting on the TGNH projects. Upon in-service of the Southeast Gateway pipeline, the CFE’s equity interest in TGNH would equal 15 per cent, which would increase to approximately 35 per cent upon expiry of the contract in 2055. Regulatory approvals related to the CFE's equity participation in TGNH are expected to take up to 24 months.
Power and Storage
Other Energy Solutions
Corporate
Teleconference and Webcast
We will hold a teleconference and webcast on Wednesday, November 9, 2022 at 6:30 a.m. (MST) / 8:30 a.m. (EST) to discuss our third quarter 2022 financial results and company developments. Presenters will include François Poirier, President and Chief Executive Officer; Joel Hunter, Executive Vice-President and Chief Financial Officer; and other members of the executive leadership team.
Members of the investment community and other interested parties are invited to participate by calling 1.800.319.4610. No pass code is required. Please dial in 15 minutes prior to the start of the call. A live webcast of the teleconference will be available on TC Energy's website at www.TCEnergy.com/events or via the following URL: http://www.gowebcasting.com/12255.
A replay of the teleconference will be available two hours after the conclusion of the call until midnight EST on November 16, 2022. Please call 1.855.669.9658 and enter pass code 9477.
The unaudited interim Condensed consolidated financial statements and Management’s Discussion and Analysis (MD&A) are available on our website at www.TCEnergy.com and will be filed today under TC Energy's profile on SEDAR at www.sedar.com and with the U.S. Securities and Exchange Commission on EDGAR at www.sec.gov.
About TC Energy
We’re a team of 7,000+ energy problem solvers working to move, generate and store the energy North America relies on. Today, we’re taking action to make that energy more sustainable and more secure. We’re innovating and modernizing to reduce emissions from our business. And, we’re delivering new energy solutions – from natural gas and renewables to carbon capture and hydrogen – to help other businesses and industries decarbonize too. Along the way, we invest in communities and partner with our neighbours, customers and governments to build the energy system of the future.
TC Energy's common shares trade on the Toronto (TSX) and New York (NYSE) stock exchanges under the symbol TRP. To learn more, visit us at www.TCEnergy.com.
Forward-Looking Information
This release contains certain information that is forward-looking, including the sustainability commitments and targets contained in our 2022 Report on Sustainability and our GHG Emissions Reduction Plan, and is subject to important risks and uncertainties (such statements are usually accompanied by words such as "anticipate", "expect", "believe", "may", "will", "should", "estimate", "intend" or other similar words). Forward-looking statements in this document are intended to provide TC Energy security holders and potential investors with information regarding TC Energy and its subsidiaries, including management's assessment of TC Energy's and its subsidiaries' future plans and financial outlook. All forward-looking statements reflect TC Energy's beliefs and assumptions based on information available at the time the statements were made and as such are not guarantees of future performance. As actual results could vary significantly from the forward-looking information, you should not put undue reliance on forward-looking information and should not use future-oriented information or financial outlooks for anything other than their intended purpose. We do not update our forward-looking information due to new information or future events, unless we are required to by law. For additional information on the assumptions made, and the risks and uncertainties which could cause actual results to differ from the anticipated results, refer to the most recent Quarterly Report to Shareholders and the 2021 Annual Report filed under TC Energy's profile on SEDAR at www.sedar.com and with the U.S. Securities and Exchange Commission at www.sec.gov and the "Forward-looking information" section of our 2022 Report on Sustainability and our GHG Emissions Reduction Plan which are available on our website at www.TCEnergy.com.
Non-GAAP Measures
This release contains references to the following non-GAAP measures: comparable earnings, comparable earnings per common share, comparable EBITDA and comparable funds generated from operations. These non-GAAP measures do not have any standardized meaning as prescribed by GAAP and therefore may not be comparable to similar measures presented by other entities. These non-GAAP measures are calculated by adjusting certain GAAP measures for specific items we believe are significant but not reflective of our underlying operations in the period. These comparable measures are calculated on a consistent basis from period to period and are adjusted for specific items in each period, as applicable except as otherwise described in the Condensed consolidated financial statements and MD&A. Refer to: (i) each business segment for a reconciliation of comparable EBITDA to segmented earnings; (ii) Consolidated results section for reconciliations of comparable earnings and comparable earnings per common share to Net income attributable to common shares and Net income per common share, respectively; and (iii) Financial condition section for a reconciliation of comparable funds generated from operations to Net cash provided by operations. Refer to the Non-GAAP measures section of the MD&A in our most recent quarterly report for more information about the non-GAAP measures we use, which section of the MD&A is incorporated by reference herein. The MD&A can be found on SEDAR ( www.sedar.com ) under TC Energy's profile.
Additional Information
This release should also be read in conjunction with our December 31, 2021 audited Consolidated financial statements and notes and the MD&A in our 2021 Annual Report. Capitalized abbreviated terms that are used but not otherwise defined herein are defined in our 2021 Annual Report. Certain comparative figures have been adjusted to reflect the current period's presentation.
Media Inquiries:
Jaimie Harding / Hejdi Carlsen
media@tcenergy.com
403.920.7859 or 800.608.7859
Investor & Analyst Inquiries:
Gavin Wylie / Hunter Mau
investor_relations@tcenergy.com
403.920.7911 or 800.361.6522
Download full report here: https://www.tcenergy.com/siteassets/pdfs/investors/reports-and-filings/annual-and-quarterly-reports/2022/tc-2022-q3-quarterly-report.pdf
1 Comparable earnings, comparable earnings per common share, comparable funds generated from operations and comparable EBITDA are non-GAAP measures used throughout this news release. These measures do not have any standardized meaning under GAAP and therefore are unlikely to be comparable to similar measures presented by other companies. The most directly comparable GAAP measures are Net income attributable to common shares, Net income per common share, Net cash provided by operations and Segmented earnings, respectively. For more information on non-GAAP measures, refer to the Non-GAAP section of this news release.
