TC Energy splitting into two companies by spinning off liquids business

Pedestrians walk past a sculpture outside the TC Energy head office in downtown Calgary on Sept. 16, 2022. THE CANADIAN PRESS/Jeff McIntosh

TC Energy Corp. has announced plans to split into two separate companies by spinning off its crude oil pipelines business.

The Calgary-based pipeline giant made the announcement — which it called "transformational" — after the close of markets Thursday, one day before its scheduled conference call to discuss the company's second-quarter earnings.

According to the company, the transaction will be completed on a tax-free basis, and will result in the creation of two publicly traded companies. TC Energy will look more like a utility company, with a focus on natural gas infrastructure as well as nuclear, pumped hydro energy storage and new low-carbon energy opportunities.

The new liquids 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.

In an interview, TC Energy CEO François Poirier said the company's board of directors has approved the plan, which comes as the result of a two-year strategic review.

Poirier said now, more than ever, it's apparent that all types of energy are required to meet global demand. While TC Energy has its fingers in many different pies, from natural gas delivery to crude oil transport to nuclear through its part ownership of Ontario's Bruce Power, the company felt that separating its lines of business would allow for faster growth.

"When we took a step back and looked at all the opportunity we had in all of our franchises, it was way more than we could ... pursue as one company, given our financial and human capacity," Poirier said.

“It’s simply a case of having limited resources, and we feel like we can pursue a bigger percentage of our opportunity set as two different companies.”

Creating a pure-play natural gas and low-carbon business will help TC Energy attract new investors, Poirier said, though he emphasized that doesn't mean investors are shying away from crude oil pipelines.

"The shareholders of TC Energy today really like that (oil pipeline) business," he said.

"It's just that there's been so much growth on the gas and low-carbon side of the business.'

Under the proposed transaction, TC Energy shareholders will retain their current ownership in TC Energy’s common shares and receive a pro-rata allocation of common shares in the new liquids pipelines company. The number of common shares in the new company to be distributed to TC Energy shareholders will be determined prior to the closing of the split.

The transaction is expected to be tax-free for TC Energy's Canadian and U.S. shareholders. Because that will require favourable rulings from U.S. and Canadian tax authorities which will take some time to achieve, Poirier said, a shareholder vote on the transaction won't be held until mid-2024.

The transaction is expected to be complete by the end of 2024.

TC Energy has been under scrutiny by analysts and credit rating services this year for its significant debt load as well as for cost overruns on the Coastal GasLink project, which is currently nearing completion in B.C.

The projected cost of that project has grown to $14.5 billion, up significantly from a previous estimate of $11.2 billion and more than double the initial cost estimate of $6.2 billion.

On Monday, TC Energy announced it would sell off a 40 per cent stake in its Columbia Gas Transmission and Columbia Gulf Transmission systems to New York City-based Global Infrastructure Partners for $5.2 billion.

Poirier said he hopes to achieve an additional $3 billion in divestitures between now and the end of 2024, adding the funds will be used to pay down debt and clear the way for the growth of the two newly separated companies.

A portion of TC Energy's of long-term debt will be transferred to the liquids pipelines company on a cost-effective basis.

"We’re unlocking tremendous value, in my view, by creating two premium energy infrastructure companies," Poirier said.

Poirier will remain president and CEO of TC Energy, while Bevin Wirzba — currently executive vice-president and group executive for the company's natural gas and liquids pipelines — will become CEO of the new liquids pipelines company.

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This report by The Canadian Press was first published on July 27, 2023.

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