Release Date: August 01, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- TC Energy Corp (TRP, Financial) reported a 9% increase in comparable EBITDA for Q2 2024 compared to Q2 2023.
- The company successfully placed $1.2 billion of projects into service and is on track to place approximately $7 billion of assets into service in 2024.
- TC Energy Corp (TRP) entered into Canada's largest ever indigenous equity ownership agreement, enhancing community relations and creating stable revenue for local indigenous communities.
- The company achieved unanimous support from customers for a five-year settlement agreement on the NGTL system, expected to add $150 million to $200 million in incremental EBITDA annually.
- TC Energy Corp (TRP) reaffirmed its 2024 comparable EBITDA target of $11.2 billion to $11.5 billion, driven by strong year-to-date performance and project completions.
Negative Points
- Comparable earnings for Q2 2024 were slightly lower than Q2 2023, impacted by FX derivative losses and increased deductions for non-controlling interest.
- The company's liquid segment saw lower contributions in Q2 2024 due to additional WCSB egress and reduced liquid marketing activity.
- TC Energy Corp (TRP) expects its earnings per common share to be lower in 2024 compared to 2023, primarily due to ongoing asset divestitures.
- The company faces potential challenges in achieving its 2025 leverage target, requiring continued strong EBITDA performance, capital expenditure savings, and possibly additional asset divestitures.
- The ongoing litigation related to the Columbia acquisition, with a $400 million verdict, could impact the company's deleveraging plans if the appeal is not successful.
Q & A Highlights
Q: Given the recent positive developments, including $2.6 billion in asset sales and the NGTL settlement, where do you see leverage shaking out in 2025 versus the 4.75 times target?
A: With the $2.6 billion of asset sales and strong EBITDA performance, we are largely done with being below 4.75 times for 2024. For 2025, we have three levers: improving EBITDA performance, outperforming on capital spend, and additional divestitures. We are confident in our ability to address the interim 2025 leverage metrics.
Q: Does the recent NGTL settlement suggest a template for similar transactions in the future, and does it set a floor multiple of 12 times for future asset sale valuations?
A: Yes, but it would be asset-dependent. NGTL, being full cost of service regulation, garners a very attractive valuation. The backdrop is very positive for M&A, with strong demand for natural gas infrastructure from private buyers, and we expect robust multiples for future transactions.
Q: Can you walk us through the EBITDA uplift for the NGTL settlement in more detail?
A: The settlement will generate about $150 million through higher depreciation rates and another $50 million through incentive mechanisms. The $150 million was largely included in our plan, while the $50 million represents additional upside.
Q: What does it mean strategically to have indigenous communities as part owners of the NGTL asset?
A: This partnership allows us to share development plans and receive input from indigenous communities earlier, building stronger alignment and support for projects during the regulatory phase.
Q: What are the key gating factors and hurdles related to the execution of the Southeast Gateway project?
A: The project remains on track for a mid-2025 in-service date with no change to the $4.5 billion cost estimate. We are focused on completing the remaining offshore and onshore work. Discussions around early in-service are ongoing but not yet definitive.
Q: How do you see the political landscape evolving in Mexico and the US, and what potential impact could it have on your business?
A: President-elect Sheinbaum's election in Mexico is expected to continue supportive policies for natural gas transmission. The US election is not expected to significantly impact our business in Mexico, as adding egress for US natural gas is agnostic to which party forms the government.
Q: What are your next focus areas with respect to rate filings, and is there room to reflect depreciation rates and bring forward cash flows?
A: We are working on rate cases for Columbia and ANR systems, with new rates expected to take effect between 2025 and 2026. We are also close to settling ongoing rate cases for GTN and Northern Border systems.
Q: Can you elaborate on the data center opportunity and how it compares between the US and Canada?
A: The US has around 300 data centers under construction, with 60% located within 50 miles of our pipelines. In Canada, there are around 300 data centers, with potential for 1-2 gigawatts of growth by the end of the decade. Mexico also presents opportunities, particularly in the state of Queretaro.
Q: How are you progressing towards your productivity and cost-effectiveness initiatives?
A: We set a target of $750 million in synergy savings by 2025 and have already generated around $410 million. We expect to meet or exceed our target ahead of schedule.
Q: How do you think about growth in Mexico within your $6 billion to $7 billion per year CapEx budget?
A: We are bullish on Mexico's role in North American gas markets. While we see additional investment opportunities, we are focused on managing our aggregate exposure. Any new investments will likely be smaller, low-risk ancillary lateral opportunities.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
