Spotlight: TC Energy Corp. - Company Challenged to Refocus Growth Plans After KXL Setback

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This Spotlight report focuses on TC Energy, the major Canadian midstream firm that owns and would operate Keystone XL, and it addresses the impact of the decision to cancel the pipeline. The company, formerly TransCanada Pipelines, and then-partner ConocoPhillips first proposed Keystone XL as an expansion of the then-under-construction Keystone Pipeline, which began transporting 591 Mb/d of crude oil in 2010-11 from Hardesty, AB, to Steele City, NE, and then on to hubs in Patoka, IL, and Cushing, OK. In 2015, President Barack Obama rejected a cross-border Presidential Permit for Keystone XL and vetoed a Congressional bill authorizing construction. But President Trump heralded his new oil-friendly approach by approving the permit in January 2017. After, garnering the support of Canadian First Nations and the Alberta government, TC Energy announced a final investment decision in March 2020 and commenced construction that was abruptly halted on January 20, 2021. Keystone XL, which represented a huge portion of the company’s C$37 billion growth capital program, was expected to boost annual EBITDA by nearly C$2 billion, trigger multiple related terminal and other infrastructure expansions, and would substantially increase TC Energy’s commodity diversification.

Conclusions by East Daley Capital include:

  • Despite the suspension of the major Keystone XL Pipeline project, TC Energy Adjusted EBITDA is forecast to increase 7% from C$9.4 billion in 2020 to C$10.1 billion in 2023.
  • Canadian Natural Gas Pipelines Adjusted EBITDA will rise 22%, or C$570 million, to C$3.1 billion as C$9.1 billion in growth projects increase natural gas deliverability from Western Canada by 40%.
  • Adjusted 2023 EBITDA for U.S. Natural Gas Pipelines is estimated at C$3.6 billion, flat with 2020, as current brownfield expansions offset declines on certain systems from contract roll-offs and reductions from rate case hearings.
  • Mexico Pipeline 2020 EBITDA was boosted by a US$56 million one-time payment upon completion of the Sur de Texas pipeline. EBITDA will decline to C$731 million in 2021 and remain relatively stable through 2023 as declines in the value of the Mexican peso offset higher revenues from the completion of two current pipeline projects.
  • Liquids Pipeline EBITDA is forecast to decline 9% from C$1.7 billion in 2020 to C$1.6 billion in 2023 on volume attrition from overcapacity on the southern part of the Keystone System and substantial weakness in Liquids Marketing margins.
  • Steadily rising realized prices from the refurbishment of Bruce Power’s nuclear units will fuel a 50% increase in EBITDA from C$677 million in 2020 to C$1.0 billion in 2023.
  • Growth capital expenditures will decline steeply from C$7.9 billion in 2020 to C$1.5 billion in 2023 as the company completes its current slate of C$20 billion in secured growth projects.
  • The company expects its growth projects will allow 5-7% annual dividend increases.
  • With Keystone XL off the table, the company’s long-term growth opportunities will likely be limited to expansion of its Western Canadian infrastructure and continuation of the Bruce Power Life Extension program.

Spotlight: TC Energy Corp. is included in RBN’s Drill Down report series, a suite of reports covering many of the key issues expected to impact the markets for crude oil, natural gas and natural gas liquids. Spotlight reports are part of RBN Backstage Pass™ premium resources that also include Blog Archive Access, Spotcheck Indicators, Market Fundamentals Webcasts, Get-Togethers and more. Spotlight is a joint venture of RBN Energy and East Daley Capital. By subscribing to RBN’s Backstage Pass™ Premium Services, you plug into our network and get direct access to our premium resources.

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