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    TC ENERGY (TRP)

    Q1 2024 Earnings Summary

    Reported on Feb 18, 2025 (Before Market Open)
    Pre-Earnings Price$33.17Last close (May 2, 2024)
    Post-Earnings Price$34.10Open (May 3, 2024)
    Price Change
    $0.93(+2.80%)

    What went well

    • TC Energy is experiencing record deliveries across all jurisdictions, with natural gas throughput up 5% quarter-over-quarter in both Canada and the U.S., driven by strong demand from power generators and emerging data center loads. This growth indicates increasing utilization of TC Energy's assets and potential for future earnings growth.
    • The company achieved high operational reliability, with assets like the Keystone pipeline achieving 96% operational reliability in Q1, and 94% of its capacity contracted under 8-plus year term agreements, providing stable and predictable cash flows.
    • TC Energy reaffirmed its 2024 guidance with a focus on strong execution, improving return on invested capital, and delivering projects on time and on budget, indicating management's confidence in future performance.

    What went wrong

    • The strong performance in the Alberta natural gas storage business during Q1 was primarily due to a one-time severe weather event in January, which is not expected to recur in future quarters. This suggests that exceptional earnings from this segment may not be sustainable.
    • The Liquids segment's strong Q1 results, including a 96% system operating factor and additional contracts, may not be sustainable due to upcoming market changes like the Trans Mountain Expansion (TMX) linefill, which is starting now and is expected to narrow the arbitrage on the Keystone system, potentially reducing demand and profitability. Management anticipates that future performance will not be as strong as in the first quarter.
    • TC Energy may need to conduct additional asset sales if operational outperformance and cost reductions are insufficient to meet their debt-to-EBITDA target of 4.75x by the end of 2025, which could impact future earnings and limit growth opportunities.

    Q&A Summary

    1. Asset Sales and Deleveraging
      Q: Can you update on asset sales and deleveraging plans?
      A: Francois Poirier reaffirmed confidence in achieving the $3 billion asset sale target, including proceeds from selling a 15% interest in TGNH to CFE expected as early as next week. Additional divestitures are progressing well, focusing on Canada and possibly Mexico, with announcements anticipated in the second quarter. They are committed to maintaining leverage below the 4.75x target in 2024 and 2025 through operational outperformance, project execution, and potential additional asset sales if needed.

    2. Southeast Gateway Progress
      Q: How is the Southeast Gateway project progressing and what are the risks?
      A: The project is advancing well, with 70% of the offshore pipeline completed, including 100% of the northern segment. The main risks ahead are weather and maintaining productivity, but they are mitigating weather risk by performing subsea tie-ins below the waterline. They remain on track for the summer 2025 in-service date, with the project on schedule and budget.

    3. Data Centers Driving Demand
      Q: How is data center growth impacting gas demand and opportunities?
      A: Data centers are expected to drive significant gas demand growth, estimated at 6–8 Bcf/day by 2030. TC Energy sees meaningful opportunities, particularly in Virginia and Wisconsin, where they are well-positioned with existing pipelines. They are in discussions to capture this growth, which may require expansions involving both pipe and compression.

    4. South Bow Leverage Plans
      Q: Has the higher interest rate environment changed South Bow's capital structure plans?
      A: South Bow remains committed to an initial leverage ratio of 5x and achieving an investment-grade credit rating. They plan to deleverage by allocating capital to projects like Blackrod, accelerating cash flows and reducing leverage. The average debt maturity profile is expected to be around 10 years, accessing the full debt spectrum.

    5. Business Performance and Ratings
      Q: How is the business performing versus expectations, and what if S&P downgrades TRP?
      A: TC Energy is performing in line with plans provided to rating agencies, reaffirming 2024 EBITDA guidance of $11.2 to $11.5 billion. They focus on operational excellence and delivering projects on time and budget. Regarding a potential S&P downgrade, they believe it would have negligible impact, with investors focusing on their deleveraging plans and stable 4.75x leverage target.

    6. Alberta Gas Storage Strength
      Q: Is the strong performance of Alberta gas storage sustainable?
      A: The outperformance in Q1 was due to capitalizing on severe weather events in January, benefiting from price volatility. While such events are opportunistic and not expected every quarter, they have demonstrated the ability to maximize value when they occur. They will continue to focus on maximizing value from their exceptional storage assets.

    7. Coastal GasLink and Cedar LNG
      Q: What is the scope and economics of work to support Cedar LNG?
      A: TC Energy is contractually committed to proceed with the project to support Cedar LNG and is developing the project cost and execution plan. They are comfortable with the allocation of risk and expect to fit the required equity capital within their $6 billion capital plan. They did not provide specific EBITDA build multiples at this time.

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