TC Energy Corporation (TSX, NYSE: TRP) (TC Energy or the Company)
today announced net income attributable to common shares for second
quarter 2020 of $1.3 billion or $1.36 per share compared to net
income of $1.1 billion or $1.21 per share for the same period in
2019. For the six months ended June 30, 2020, net income
attributable to common shares was $2.4 billion or $2.59 per share
compared to net income of $2.1 billion or $2.30 per share for the
same period in 2019. Comparable earnings for second quarter 2020
were $863 million or $0.92 per common share compared to $924
million or $1.00 per common share in 2019. For the six months ended
June 30, 2020, comparable earnings were $2.0 billion or $2.10 per
common share compared to $1.9 billion or $2.07 per common share for
the same period in 2019. TC Energy's Board of Directors also
declared a quarterly dividend of $0.81 per common share for the
quarter ending September 30, 2020, equivalent to $3.24 per common
share on an annualized basis.
"During the first half of 2020, our diversified portfolio of
essential energy infrastructure continued to perform very well,”
said Russ Girling, TC Energy’s President and Chief Executive
Officer. ”I am proud that in these unprecedented times we have
continued to deliver the energy and advance projects vital to
powering our industries and institutions as well as to the daily
life and mobility of millions of North Americans. We have done this
in a safe, reliable manner, maintaining our workforce, employing
thousands of construction workers and with a commitment to
fulfilling our obligations to people, communities, suppliers and
governments on a full and timely basis."
Despite the challenges brought about by COVID-19, TC Energy's
assets have been largely unimpacted. With few exceptions, flows and
utilization levels remain in line with historical and seasonal
norms, underscoring their criticality to North American consumers,
institutions and commerce. With approximately 95 per cent of
comparable EBITDA generated from regulated assets and/or long-term
contracts, we continue to be largely insulated from short-term
volatility associated with volume throughput and commodity prices.
The Company's outlook for full year 2020 is essentially
unchanged.
TC Energy also continued to advance its industry leading $37
billion secured capital program by placing approximately $3.0
billion of assets into service during the first half of 2020. In
addition, the Company enhanced its liquidity by in excess of $11
billion during the second quarter by concluding the partial sale
and project financing of Coastal GasLink along with the disposition
of its Ontario natural gas-fired power plants for combined proceeds
of approximately $4.9 billion, completing senior debt issuances of
$2.0 billion and US$1.25 billion on compelling terms, as well as
arranging US$2.0 billion of incremental committed credit facilities
with its core banking group.
“Our significant internally generated cash flow, strong
financial position and continued access to capital markets will
enable us to prudently fund our secured capital program in a manner
that is consistent with maintaining our strong credit ratings and
targeted credit metrics," added Girling. "Once completed,
approximately 98 per cent of the Company’s consolidated comparable
EBITDA is expected to come from regulated and/or long-term
contracted assets. Success in advancing these and other organic
growth opportunities emanating from our five operating businesses
across North America is expected to support annual dividend growth
of eight to 10 per cent in 2021 and five to seven per cent
thereafter."
Highlights(All financial figures are unaudited
and in Canadian dollars unless otherwise noted)
- Second quarter 2020 financial results
- Net income attributable to common shares of $1.3 billion or
$1.36 per common share
- Comparable earnings of $863 million or $0.92 per common
share
- Comparable EBITDA of $2.2 billion
- Net cash provided by operations of $1.6 billion
- Comparable funds generated from operations of $1.5 billion
- Declared a quarterly dividend of $0.81 per common share for the
quarter ending September 30, 2020
- Placed approximately $2.9 billion of NGTL System and $0.1
billion of Canadian Mainline capacity projects in service in the
first half of 2020
- Reached a five-year negotiated revenue requirement settlement
for the NGTL System in April
- Continued construction activities on the Coastal GasLink
pipeline. Also sold a 65 per cent equity interest in the project
and entered into secured long-term project financing credit
facilities to fund the majority of the construction costs resulting
in combined net proceeds of $2.1 billion
- Announced that we will proceed to build Keystone XL and
commenced construction in April
- Approved the US$0.4 billion Elwood Power Project/ANR
Horsepower Replacement on July 29 to replace, upgrade and modernize
certain ANR facilities
- Completed the sale of the Ontario natural gas-fired power
plants for net proceeds of $2.8 billion on April 29
- Issued $2.0 billion of seven-year fixed-rate Medium Term Notes
and US$1.25 billion of 10-year fixed-rate Senior Unsecured Notes
and arranged for an additional US$2.0 billion of committed credit
facilities in April.
Net income attributable to common shares increased by $156
million or $0.15 per common share to $1.3 billion or $1.36 per
share for the three months ended June 30, 2020 compared to the same
period last year. Per share results reflect the dilutive impact of
common shares issued under our Dividend Reinvestment and Share
Purchase Plan (DRP) in 2019. Second quarter 2020 results included
an after-tax gain of $408 million related to the sale of a 65 per
cent equity interest in the Coastal GasLink pipeline and an
incremental after-tax loss of $80 million due to the Ontario
natural gas-fired power plant assets sold on April 29, 2020. Second
quarter 2019 results included an after-tax gain of $54 million due
to the sale of our Coolidge generating station in May 2019, a
deferred tax benefit of $32 million related to the impact of an
Alberta corporate income tax rate reduction on our Canadian
businesses not subject to rate-regulated accounting and an
after-tax gain of $6 million related to U.S. Northeast power
marketing contracts which were sold in May 2019. These specific
items, as well as unrealized gains and losses from changes in risk
management activities, are excluded from comparable earnings as we
do not consider these transactions or adjustments to be a part of
our underlying operations.
Comparable EBITDA decreased by $125 million for the three months
ended June 30, 2020 compared to the same period in 2019 primarily
due to the net effect of the following:
- decreased contribution from Liquids Pipelines due to lower
uncontracted volumes on the Keystone Pipeline System, lower
contributions from liquids marketing activities and decreased
earnings following the July 2019 sale of an 85 per cent equity
interest in Northern Courier
- lower Power and Storage earnings mainly attributable to
decreased Bruce Power results due to the planned removal of Unit 6
on January 17, 2020 for the Major Component Replacement (MCR)
program and lower Canadian Power earnings largely as a result of
the sale of our Ontario natural gas-fired power plants on April 29,
2020, the May 2019 sale of our Coolidge generating station and an
outage at our Mackay River cogeneration facility in 2020
- lower earnings in U.S. Natural Gas Pipelines primarily
attributable to the sale of certain Columbia midstream assets in
August 2019
- higher contribution from Canadian Natural Gas Pipelines
primarily due to the impact of increased rate base earnings
and flow-through depreciation and financial charges on the NGTL
System from additional facilities placed in service
- increased Mexico Natural Gas Pipelines results mainly due to
higher earnings from our investment in the Sur de Texas pipeline
which was placed in service in September 2019
- foreign exchange impact of a stronger U.S. dollar on the
Canadian dollar equivalent earnings in our U.S. and Mexico
operations.
Due to the flow-through treatment of certain expenses including
income taxes, financial charges and depreciation on our Canadian
rate-regulated pipelines, changes in these expenses impact our
comparable EBITDA despite having no significant effect on net
income.
Comparable earnings decreased by $61 million or $0.08 per common
share for the three months ended June 30, 2020 compared to the
same period in 2019 and was primarily the net effect of:
- changes in comparable EBITDA described above
- a decrease in Income tax expense mainly due to lower pre-tax
earnings and a lower Alberta income tax rate
- lower Interest expense as a result of higher capitalized
interest mainly related to Keystone XL and Coastal GasLink, net of
the impact of Napanee completing construction in first quarter
2020, and lower interest rates on lower levels of short-term
borrowings, partially offset by the effect of long-term debt
issuances, net of maturities
- lower AFUDC predominantly due to NGTL System expansion projects
placed in service and the suspension of recording AFUDC on the Tula
project due to continuing construction delays, partially offset by
the impact of a rate adjustment during second quarter 2019 relating
to our Columbia Gas growth projects
- higher depreciation largely in Canadian Natural Gas Pipelines
reflecting new projects placed in service and recovered on a
flow-through basis.
Comparable earnings per common share for the three months ended
June 30, 2020 also reflects the dilutive impact of common
shares issued under our DRP in 2019.
On March 11, 2020, the World Health Organization declared the
novel coronavirus, or COVID-19, a global pandemic. Company business
continuity plans are in place across our organization and we
continue to effectively operate our assets, conduct commercial
activities and execute on projects with a focus on health, safety
and reliability. Our businesses are broadly considered essential in
Canada, the United States and Mexico given the important role our
infrastructure plays in providing energy to North American markets.
We are confident that our robust continuity and business resumption
plans for critical teams, including liquids and gas control as well
as commercial and field operations, will continue to ensure the
safe and reliable delivery of energy for our customers. We
anticipate that changes to work practices and other restrictions
put in place by government and health authorities in response to
COVID-19 will have an impact on certain projects. While we
generally believe this will not be material, we also recognize that
the ultimate impact remains uncertain at this time.
With approximately 95 per cent of our comparable EBITDA
generated from rate-regulated assets and/or long-term contracts, we
are largely insulated from the short-term volatility associated
with fluctuations in volume throughput and commodity prices. Aside
from the impact of maintenance activities and normal seasonal
factors, to date we have not seen any pronounced changes in the
utilization of our assets, with the exception of the Keystone
Pipeline System which has experienced a modest reduction in
uncontracted volumes. To date, we have not encountered any
significant impacts on our supply chain. While it is too early to
ascertain any long-term impact that COVID-19 may have on our
capital program, directionally we have observed some slowdown of
our construction activities and capital expenditures in 2020,
largely due to permitting delays as regulators have been unable to
process permits and conduct consultations in time frames that were
originally anticipated. The impact of the Unit 6 force majeure at
Bruce Power is still being evaluated and will ultimately depend on
the extent and duration of the pandemic and our ability to
implement mitigation measures.
Capital market conditions in 2020 have seen periods of extreme
volatility and reduced liquidity. Despite this challenging
backdrop, we have enhanced our liquidity by in excess of $11
billion during second quarter by accessing debt capital markets,
arranging incremental committed credit facilities and completing
sizable portfolio management transactions. With the combination of
our predictable and growing cash flows from operations, cash on
hand, substantial committed credit facilities, and various other
financing levers available to us, we believe we are well positioned
to continue to fund our obligations.
The combination of the COVID-19 pandemic and unparalleled energy
demand and supply disruption has had a significant impact on
certain of our customers. While counterparty risk has heightened
and we have increased our monitoring of and communication with
counterparties experiencing greater financial pressures, we are not
expecting any material negative impact to our 2020 earnings or cash
flows.
The full extent and lasting impact of the COVID-19 pandemic on
the global economy is uncertain but to date has included extreme
volatility in financial markets and commodity prices, a significant
reduction in overall economic activity, and widespread extended
shutdowns of businesses along with supply chain disruptions. The
degree to which COVID-19 has a more significant impact on our
operations and growth projects will depend on future developments,
policies and actions which remain highly uncertain.
Other notable recent developments include:
Canadian Natural Gas Pipelines:
- Coastal GasLink Pipeline Project: On May 22, 2020, we completed
the sale of a 65 per cent equity interest in Coastal GasLink to
KKR-Keats Pipeline Investors II (Canada) Ltd. (KKR) and a
subsidiary of Alberta Investment Management Corporation (AIMCo) for
net proceeds of $656 million before post-closing
adjustments resulting in a pre-tax gain of $370 million ($408
million after tax). As part of the transaction, we were
contracted by Coastal GasLink Pipeline Limited Partnership to
construct and operate the pipeline.On April 28, 2020, Coastal
GasLink entered into secured long-term project financing credit
facilities with total capacity of $6.6 billion to fund the majority
of the construction costs of the Coastal GasLink pipeline.
Immediately preceding the equity sale, Coastal GasLink drew down
$1.6 billion on the facilities, of which approximately $1.5
billion was paid to TC Energy. Future draws on these facilities
will reduce partner contributions required to fund the
project.Under the terms of the equity purchase agreement, we
received proceeds at the time of close that included reimbursement
of 65 per cent of the project costs incurred to May 22, 2020.
Effective this date, we also began accruing fees earned during the
construction of the pipeline for management and financial services
provided and accounting for our remaining 35 per cent investment
using equity accounting.The introduction of partners, establishment
of dedicated project-level financing facilities, recovery of cash
payments through construction for carrying charges on costs
incurred and remuneration for costs to date are expected to
substantially satisfy our funding requirements through project
completion.We continue to work with the 20 First Nations that have
executed agreements with Coastal GasLink to provide them an
opportunity to invest in the project, with an option to acquire a
10 per cent equity interest in Coastal GasLink on similar terms to
what has been agreed with KKR and AIMCo.Field activity continues to
increase across the project following spring thaw, with crews
re-mobilizing while incorporating our COVID-19 guidelines for
construction safety. Ongoing work activity includes construction of
roads, bridges, worker accommodation, and right of way grading.
Pipe delivery continues with more than 50 per cent of required pipe
supply delivered to site and mainline mechanical construction will
commence this summer. The project is currently conducting a review
of baseline cost and schedule to incorporate scope increases,
permit delays, and COVID-19 impacts.
- NGTL System: In the six months ended June 30, 2020, the NGTL
System placed approximately $2.9 billion of capacity projects in
service.On February 19, 2020, the CER issued a report recommending
that the Governor in Council (GIC) approve the 2021 NGTL System
Expansion Program and we are awaiting a final decision from the
GIC. The approximately 344 km (214 miles) of new pipeline and three
compressor units are required to connect incremental firm-receipt
supply commencing April 2021 and expand basin export capacity by
approximately 1.1 PJ/d (1.0 Bcf/d).The NGTL System held a Capacity
Optimization Open Season in second quarter 2020 soliciting requests
for the deferral or advancement of pending contracts to assist
customers in optimizing their transportation service
requirements and align system expansions with customer growth
requirements. Following analysis of the results of the open
season, we concluded that all proposed system expansion projects
continue to be required to meet aggregate system demand, although
the in-service dates for some facilities have been delayed. This
will result in a certain amount of capital spending deferral from
2020 and 2021 to 2022 through 2024. The net impact of these
deferrals, together with some expected increase in project costs on
the 2021 NGTL System Expansion Program, have been incorporated into
the Secured projects table in the MD&A.The NGTL System's
2018-2019 Revenue Requirement Settlement expired in December 2019.
On April 24, 2020, the NGTL System announced a five-year negotiated
revenue requirement settlement with its customers and other
interested parties, encompassing a term from January 1, 2020
through December 31, 2024. The settlement maintains the equity
return at 10.1 per cent on 40 per cent deemed common equity,
provides the NGTL System with the opportunity to increase
depreciation rates if tolls fall below projected levels and
includes an incentive mechanism for certain operating costs where
variances from projected amounts are shared between the NGTL System
and its customers. It also includes a mechanism to review the
settlement should tolls exceed a pre-determined level, without
affecting the equity return. The NGTL System filed an application
with the CER for approval on May 1, 2020. Until new rates are
approved, the NGTL System is operating under revised interim tolls
for 2020 approved by the CER.
U.S. Natural Gas Pipelines:
- Elwood Power Project/ANR Horsepower Replacement: On July 29,
2020, we approved the Elwood Power Project/ANR Horsepower
Replacement that will replace, upgrade and modernize certain
facilities while reducing emissions along a highly utilized section
of the ANR pipeline system. The enhanced facilities will improve
reliability of the ANR system and also allow for additional
contracted transportation services of approximately 132 TJ/d (123
MMcf/d) to be provided to an existing power plant near Joliet,
Illinois. The anticipated in-service date of the combined project
is in the second half of 2022 with estimated costs of US$0.4
billion.
- Columbia Gas Section 4 Rate Case: Columbia Gas intends to file
a Section 4 Rate Case with FERC in third quarter 2020 requesting an
increase to Columbia Gas's maximum transportation rates expected to
become effective February 1, 2021, subject to refund. We will also
pursue a collaborative process to find a mutually beneficial
outcome with our customers through settlement negotiations.
Mexico Natural Gas Pipelines:
- Tula and Villa de Reyes: The CFE initiated arbitration in June
2019 for the Villa de Reyes and Tula projects, disputing fixed
capacity payments due to force majeure events. Arbitration
proceedings are suspended until fourth quarter 2020 while
management advances settlement discussions with the CFE.Villa de
Reyes project construction is ongoing. Phased in-service that was
expected to commence in third quarter 2020 will be delayed due to
COVID-19 contingency measures, which have impeded our ability to
obtain work authorizations as a result of administrative closures.
Subject to the timely re-opening of government agencies, we expect
to complete construction of Villa de Reyes in the first half of
2021.
Liquids Pipelines:
- Keystone XL: On March 31, 2020, we announced that we will
proceed with construction of Keystone XL, resulting in an expected
additional investment of approximately US$8.0 billion. Construction
commenced in April and the pipeline is expected to be placed into
service in 2023.As part of the funding plan, the Government of
Alberta has agreed to invest approximately US$1.1 billion as equity
in Keystone XL which substantially covers planned construction
costs through the end of 2020. The remaining capital investment of
approximately US$6.9 billion is expected to be financed through the
combination of a US$4.2 billion project-level credit facility to be
fully guaranteed by the Government of Alberta and a US$2.7 billion
investment by us. Our remaining capital contribution is expected to
be funded through a combination of internally generated cash flows,
hybrid securities and common equity through the activation of our
DRP in 2021 and 2022. Once the project is completed and placed into
service, we expect to acquire the Government of Alberta's equity
investment under agreed terms and conditions and to refinance
borrowings under the US$4.2 billion credit facility in the debt
capital markets.Keystone XL is underpinned by new 20-year
transportation service agreements which are expected to generate
approximately US$1.3 billion of EBITDA on an annual basis. Subject
to terms and conditions outlined in the agreements, 50 per cent of
any differences between the estimated capital cost and final cost
of Keystone XL are subject to a sharing mechanism and will be
reflected in the pipeline tolls.On April 15, 2020, the U.S.
District Court in Montana ruled that the U.S. Army Corps of
Engineers (USACE) violated the Endangered Species Act when it
reissued the Clean Water Act Nationwide Permit 12 (NWP12) in 2017.
The ruling vacated NWP12 and enjoined the USACE from using it to
authorize construction across wetlands and other water bodies in
the U.S. The ruling was later limited to the construction of new
oil and natural gas pipelines only. The U.S. Court of Appeals for
the Ninth Circuit denied motions for a stay of the ruling pending
appeal and a subsequent application for a stay to the U.S. Supreme
Court was granted, except as it applies to Keystone XL. Keystone XL
intends to pursue other permitting means to gain regulatory
authorization to construct the pipeline across wetlands and
waterbodies. The Company also continues to manage various other
legal and regulatory matters related to the project.
Power and Storage:
- Bruce Power – Life Extension: In late March 2020, as a result
of COVID-19 impacts, Bruce Power declared force majeure under its
contract with the Independent Electricity System Operator. This
force majeure notice covers the Unit 6 MCR and certain Asset
Management work. On May 11, 2020, work on the Unit 6 MCR and Asset
Management programs was restarted with additional prevention
measures in place for worker safety related to COVID-19. Progress
is being made on critical path activities as Bruce Power works to
isolate Unit 6 from the remaining units in preparation for the
removal of the fuel channels in late third quarter 2020. The impact
of force majeure is still being evaluated and will ultimately
depend on the extent and duration of the pandemic. Operations on
the remaining units continues as normal with scheduled outages on
Units 3, 4 and 5 successfully completed in second quarter
2020.
- Ontario natural gas-fired power plants: On April 29, 2020, we
completed the sale of the Halton Hills and Napanee power plants as
well as our 50 per cent interest in Portlands Energy Centre to a
subsidiary of Ontario Power Generation Inc. for net proceeds of
approximately $2.8 billion before post-closing adjustments.
Corporate:
- Common share dividend: Our Board of Directors declared a
quarterly dividend of $0.81 per common share for the quarter ending
September 30, 2020. The quarterly amount is equivalent to $3.24 per
common share on an annualized basis.
- Issuance of long-term debt: In April 2020, TransCanada
PipeLines Limited issued $2.0 billion of seven-year Medium Term
Notes at a fixed rate of 3.80 per cent per annum and US$1.25
billion of 10-year Senior Unsecured Notes at a fixed rate of 4.10
per cent per annum.
- Incremental credit facilities: In April 2020, we arranged for
an additional US$2.0 billion of 364-day committed bilateral credit
facilities.
Teleconference and Webcast:
We will hold a teleconference and webcast on Thursday, July 30,
2020 to discuss our second quarter 2020 financial results. Russ
Girling, President and Chief Executive Officer, Don Marchand,
Executive Vice-President, Strategy & Corporate Development and
Chief Financial Officer and other members of the executive
leadership team will discuss TC Energy's second quarter financial
results and Company developments at 9:00 a.m. MDT / 11:00 a.m.
EDT.
Members of the investment community and other interested parties
are invited to participate by calling 1.855.327.6838. No pass code
is required. Please dial in 15 minutes prior to the start of the
call. A live webcast of the teleconference will be available on TC
Energy's website at TCEnergy.com/events or via the following
URL: http://www.gowebcasting.com/10739.
A replay of the teleconference will be available two hours after
the conclusion of the call until midnight (EDT) on August 6, 2020.
Please call 1.855.669.9658 and enter pass code 4955.
The unaudited interim condensed consolidated financial
statements and Management’s Discussion and Analysis (MD&A) are
available on our website at
www.TCEnergy.com and will be filed today under TC
Energy's profile on SEDAR at
www.sedar.com and with the U.S. Securities and
Exchange Commission on EDGAR at
www.sec.gov.
About TC Energy
We are a vital part of everyday life – delivering the energy
millions of people rely on to power their lives in a sustainable
way. Thanks to a safe, reliable network of natural gas and
crude oil pipelines, along with power generation and storage
facilities, wherever life happens – we’re there. Guided by our core
values of safety, responsibility, collaboration and integrity, our
more than 7,300 people make a positive difference in the
communities where we operate across Canada, the U.S. and
Mexico.
TC Energy's common shares trade on the Toronto (TSX) and New
York (NYSE) stock exchanges under the symbol TRP. To learn more,
visit us at TCEnergy.com.
Forward-Looking Information
This release contains certain information that is
forward-looking and is subject to important risks and uncertainties
(such statements are usually accompanied by words such as
"anticipate", "expect", "believe", "may", "will", "should",
"estimate", "intend" or other similar words). Forward-looking
statements in this document are intended to provide TC Energy
security holders and potential investors with information regarding
TC Energy and its subsidiaries, including management's assessment
of TC Energy's and its subsidiaries' future plans and financial
outlook. All forward-looking statements reflect TC Energy's beliefs
and assumptions based on information available at the time the
statements were made and as such are not guarantees of future
performance. As actual results could vary significantly from the
forward-looking information, you should not put undue reliance on
forward-looking information and should not use future-oriented
information or financial outlooks for anything other than their
intended purpose. We do not update our forward-looking information
due to new information or future events, unless we are required to
by law. For additional information on the assumptions made, and the
risks and uncertainties which could cause actual results to differ
from the anticipated results, refer to the most recent Quarterly
Report to Shareholders and Annual Report filed under TC Energy's
profile on SEDAR at www.sedar.com and with the U.S. Securities
and Exchange Commission at www.sec.gov.
Non-GAAP Measures
This news release contains references to non-GAAP measures,
including comparable earnings, comparable earnings per common
share, comparable EBITDA and comparable funds generated from
operations, that do not have any standardized meaning as prescribed
by U.S. GAAP and therefore are unlikely to be comparable to similar
measures presented by other companies. Except as otherwise
described herein, these non-GAAP measures are calculated on a
consistent basis from period to period and are adjusted for
specific items in each period, as applicable except as otherwise
described in the Condensed consolidated financial statements and
MD&A. For more information on non-GAAP measures, refer to TC
Energy's most recent Quarterly Report to Shareholders.
Media Inquiries:Jaimie Harding / Hejdi
Carlsen403.920.7859 or 800.608.7859
Investor & Analyst
Inquiries: David Moneta / Hunter
Mau403.920.7911 or 800.361.6522
Download full report here:
https://www.tcenergy.com/siteassets/pdfs/investors/reports-and-filings/annual-and-quarterly-reports/2020/tc-2020-q2-quarterly-report.pdf
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