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With Coastal GasLink complete, TC Energy to focus on smaller projects

The terminus for the Coastal GasLink natural gas pipeline, bottom, is seen at the LNG Canada export terminal under construction in Kitimat, B.C., on Wednesday, September 28, 2022. TC Energy Corp. reported a loss in its latest quarter compared with a profit a year ago as it took an impairment charge related to its Coastal GasLink project. THE CANADIAN PRESS/Darryl Dyck

With its Coastal GasLink pipeline project completed, TC Energy Corp. said its goal for the next few years will be to live within its means and control its capital expenditures.

The Calgary-based pipeline company announced on Wednesday the mechanical completion of its 670-kilometre Coastal GasLink project, which has been under construction for the past five years.

The milestone, which includes the completion of final documentation and engineering analysis, comes on the heels of last month’s news that the pipeline is fully installed and marks the final step before commissioning.

The Coastal GasLink pipeline will transport natural gas from Western Canada to the Shell-led LNG Canada processing and export facility currently being built in Kitimat, B.C.

The pipeline is one the largest energy infrastructure projects in recent Canadian history and its successful completion is a significant accomplishment for TC Energy.

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But the project has also put pressure on the company’s balance sheet. Throughout the course of construction, the project’s budget ballooned from an initial $6.2 billion to $11.2 billion and then increased again to $14.5 billion.

TC Energy itself has been under significant scrutiny from investors and credit rating agencies for its heavy debt load as well as for the spiralling costs of Coastal GasLink.

The company has embarked on a large-scale asset divestiture program to pay down some of its debt. In October, TC Energy announced the completion of the sale of a 40 per cent stake in its Columbia Gas and Columbia Gulf systems to New York-based Global Infrastructure Partners for $5.3 billion.

CEO Francois Poirier told analysts on the conference call Wednesday that TC Energy continues to negotiate an additional $3 billion in asset divestitures. These divestitures will likely take the form of not one transaction, but multiple transactions, he said.

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The company has also committed, post-2024, to limiting its capital expenditures to between $6 and $7 billion annually, Poirier said.

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This will mean not having more than one large project under way at any given time, he added.

“That’s one of the key learnings for us here over the last couple of years, is to manage the aggregate risk of the capital program annually, not just the risk of the individual projects,” Poirier said.

While a blockbuster project like Coastal GasLink grabs most of the headlines, Poirier pointed out that TC Energy has placed approximately $5 billion in projects into service on its natural gas and liquids pipeline systems so far this year.

These smaller projects are the kind of projects investors can expect to see from TC Energy in the years ahead, Poirier said.

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“Look to us executing as many of those singles and doubles as possible going forward,” he said.

“Organic projects … and a very select few of those larger projects that would span many, many years and large dollar amounts.”

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He added that in the wake of the Coastal GasLink completion, TC Energy’s goal is to continue strengthening its balance sheet in support of long-term, annual dividend growth of three to five per cent.

“Our goal here going forward is returning to no surprises. Just execute well, live within our means,” Poirier said.

TC Energy also announced this year its plans to split into two separate companies by spinning off its crude oil pipelines business.

The new pipeline business will be headquartered in Calgary with an office in Houston, Texas. It will focus on enhancing the value of the company’s existing 4,900 kilometres of crude oil pipelines, including the critical Keystone pipeline system which transports oil from Alberta to refining markets in the U.S. Midwest and U.S. Gulf Coast.

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On Wednesday, TC Energy revealed the new pipeline company will be named South Bow Corp., acknowledging the pipeline system’s route south to U.S. markets while also honouring the Bow River that flows through downtown Calgary.

TC Energy reported a net loss attributable to common shares of $197 million or 19 cents per share for the quarter ended Sept. 30 compared with net income of $841 million or 84 cents per share in third quarter last year.

The latest results included a $1.18-billion after-tax impairment charge related to its equity investment in Coastal GasLink Pipeline LP.

TC Energy says its comparable earnings for the quarter amounted to $1 per share, down from $1.07 per share in the same quarter last year.

Revenue for the quarter totalled $3.94 billion, up from $3.80 billion a year earlier.

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