Keystone Pipeline Developer To Spin Off Oil Pipeline Business

TC Energy Corp. (TSX: TRP) announced on Thursday its decision to split into two separate companies, effectively spinning off its liquids pipelines business from its natural gas and low-carbon energy operations. The Calgary-based firm unveiled this strategic plan late on Thursday, marking a significant shift in its corporate structure.

The decision to divide its operations into two distinct entities follows a comprehensive two-year strategic review undertaken by TC Energy. The company anticipates completing this transformation by the latter half of 2024.

François Poirier, the Chief Executive of TC Energy, emphasized that separating into two distinct entities would enable them to execute their individual opportunities more effectively and create value for their shareholders.

“Fundamentals have always driven our strategic direction, and as a result, we have grown into a premier energy company with incumbency across a wide range of energy infrastructure platforms. As we have become the partner of choice for a magnitude of accretive, high-quality opportunities, we have determined that as two separate companies we can better execute on these distinct opportunity sets to unlock shareholder value,” said Poirier.

Just days before this announcement, TC Energy had disclosed its intention to sell 40% of its massive Columbia gas transmission systems in the United States to New York-based Global Infrastructure Partners (GIP) for a substantial $5.2 billion. The sale aimed to fortify its balance sheet, and it was part of a broader program initiated last year to divest non-core assets and minority interests, enabling the company to fund expansion endeavors without taking on excessive debt. Among the assets earmarked for sale was the Coastal GasLink pipeline in British Columbia, which had seen its anticipated cost soar more than 130 per cent from the original estimate in 2018.

The Canadian energy company is more commonly known for the challenges it faced with the contentious $8 billion Keystone XL pipeline. The decision to abandon the project was prompted by President Joe Biden’s move to withdraw the necessary permit, impacting the pipeline’s construction between Canada and the US.

The proposed pipeline aimed to transport bitumen from northern Alberta’s oil sands to refineries along the US Gulf coast. However, it became a center of political contention over fossil fuels, leading to its eventual blockage by President Barack Obama in 2015. Subsequently, President Donald Trump attempted to revive the project, but President Biden followed through on his campaign promise to revoke the permit.

After the spin-off, TC Energy will continue to manage one of North America’s largest natural gas infrastructure networks, spanning approximately 94,000 kilometers from western Canada to the US Northeast and Gulf coast. This network is instrumental in delivering around 30% of the gas eventually exported from US terminals in the form of liquefied natural gas.

Additionally, TC Energy will remain involved in Canada’s first LNG terminal, which is scheduled for completion in 2025, and retain its power generation business. TC Energy’s core focus will center on natural gas infrastructure, with a strategic shift towards becoming a utility-weighted business. The company is looking to explore new opportunities in the power and energy sectors, including nuclear and pumped hydro storage.

Conversely, the newly formed liquids pipelines company will concentrate on enhancing capacity on underutilized segments of TC Energy’s existing transport system, alongside augmenting connectivity to additional LNG receipt and delivery points. An important advantage is that TC Energy’s liquids pipelines already boast highly contracted operations, ensuring the new entity starts off with stable and robust cash flows. This solid financial foundation will grant it the necessary flexibility to pursue growth initiatives once the spinoff is complete.

The key figures at the helm of TC Energy will remain unchanged following the transformation. Poirier will retain his position as president and CEO, and Siim A. Vanaselja will continue as the chair of the board. Stan G. Chapman will assume the role of executive vice-president and chief operating officer of natural gas pipelines, spearheading the integration of TC Energy’s dispersed natural gas business units into a cohesive and unified pipelines business and will oversee 4,900 kilometers of crude pipeline infrastructure across the US and Canada, including the separate Keystone system (distinct from the never-built Keystone XL).

Leading the new liquids pipelines company will be Bevin Wirzba, who will serve as its president and CEO. This publicly traded entity will be headquartered in Calgary with an additional office in Houston, reflecting its cross-border operations. Details of the board members for the new entity are set to be revealed in the coming months.

As part of the spin-off, TC Energy shareholders will maintain their current stake in the existing company and also receive a pro-rata allocation of shares in the newly created entity.

Alongside the spinoff announcement, TC Energy also released its Q2 2023 financials, topbilled by a quarterly revenue of $3.83 billion, a jump from Q2 2022’s $3.64 billion. But the company faced a decline in its second-quarter profit compared to the previous year. The net income attributable to common shares for the second quarter amounted to $250 million, marking a significant decrease from the $889 million reported during the same period last year.

The earnings per common share followed the downward trend, coming in at 24 cents for the second quarter, in contrast to 90 cents recorded the previous year. Similarly, the comparable earnings per share were reported at 96 cents, slightly lower than the previous year’s figure of one dollar.

The US Pipeline and Hazardous Materials Safety Administration (PHMSA) said in March that it would require TC Energy to reduce operating pressure on more than 1,000 additional miles (1,609 kilometers) of its Keystone pipeline, which spilled approximately 13,000 barrels of oil in rural Kansas in December.

Information for this briefing was found via TC Energy, Financial Times, Bloomberg, The Globe And Mail, Reuters, and the sources mentioned. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.

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