Increases common share dividend by 8 per cent
CALGARY, Alberta – TC Energy Corporation (TSX, NYSE: TRP) (TC Energy or the Company) today announced net income attributable to common shares for fourth quarter 2019 of $1.1 billion or $1.18 per share compared to net income of $1.1 billion or $1.19 per share for the same period in 2018. For the year ended December 31, 2019, net income attributable to common shares was $4.0 billion or $4.28 per share compared to net income of $3.5 billion or $3.92 per share in 2018. Comparable earnings for fourth quarter 2019 were $970 million or $1.03 per common share compared to $946 million or $1.03 per common share for the same period in 2018. For the year ended December 31, 2019, comparable earnings were $3.9 billion or $4.14 per common share compared to $3.5 billion or $3.86 per common share in 2018. TC Energy’s Board of Directors also declared a quarterly dividend of $0.81 per common share for the quarter ending March 31, 2020, equivalent to $3.24 per common share on an annualized basis, an increase of eight per cent. This is the twentieth consecutive year the Board has raised the dividend.
“We are very pleased with the performance of our diversified portfolio of regulated and long-term contracted assets which generated record financial results again in 2019,” said Russ Girling, TC Energy’s President and Chief Executive Officer. “Despite significant asset sales that accelerated the strengthening of our balance sheet, comparable earnings per share increased seven per cent compared to 2018 while comparable funds generated from operations of $7.1 billion were nine per cent higher. The increases reflect the strong performance of our legacy assets and contributions from approximately $8.7 billion of growth projects that entered service in 2019. Those increases were partially offset by lower contributions from approximately $3.4 billion of assets that were monetized during the year.”
TC Energy exited 2019 having attained targeted credit metrics and in a position to fund its $30 billion portfolio of secured growth projects without the issuance of additional common shares. The Company’s strong financial position will be further bolstered by the completion of pending portfolio management and project financing expected in the first half of 2020.
In July 2019, the Company entered into an agreement to sell its Ontario natural gas-fired power plants including Napanee, Halton Hills and a 50 per cent interest in Portlands Energy Centre for approximately $2.87 billion. The transaction is anticipated to close by the end of first quarter 2020.
In December 2019, the Company also entered into an agreement to sell a 65 per cent equity interest in its $6.6 billion Coastal GasLink Pipeline Project. Under the terms of the sale, TC Energy will receive upfront proceeds that include reimbursement of its partners’ proportionate share of the project costs incurred to the date of close as well as additional payment streams through construction and operation of the pipeline. Concurrent with the sale, the Company expects that Coastal GasLink will finalize a secured construction credit facility with a syndicate of banks to fund up to 80 per cent of the project’s capital expenditures during construction. Both transactions are expected to close in the first half of 2020 and substantially satisfy the Company’s funding requirements through project completion. TC Energy will continue to be responsible for constructing and operating the pipeline.
“Over the past several years, we have taken significant steps to high-grade our asset base through organic growth, acquisitions and divestitures, as well as return our balance sheet to its position of historical strength,” added Girling. “The Company’s footprint is comprised of irreplaceable corridors of critical energy infrastructure that are expected to contribute to the continuous replenishment of our growth portfolio in the years ahead. Management remains focused on further enhancing the quality and longevity of the Company’s earnings and cash flow profile by seeking to turn our remaining merchant revenues into contracted annuity streams as well as increase regulatory certainty through long-term settlements with our customers.”
Looking forward, TC Energy will continue to progress more than $20 billion of projects under development including Keystone XL and the Bruce Power life extension program. Success in advancing these and other organic growth opportunities emanating from our five operating businesses across North America, along with our $30 billion secured capital program, is expected to support annual dividend growth of eight to 10 per cent in 2021 and five to seven per cent thereafter.
(All financial figures are unaudited and in Canadian dollars unless otherwise noted)
- Fourth quarter 2019 financial results
- Net income attributable to common shares of $1.1 billion or $1.18 per common share
- Comparable earnings of $970 million or $1.03 per common share
- Comparable EBITDA of $2.3 billion
- Net cash provided by operations of $1.8 billion
- Comparable funds generated from operations of $1.8 billion
- For the year ended December 31, 2019
- Net income attributable to common shares of $4.0 billion or $4.28 per common share
- Comparable earnings of $3.9 billion or $4.14 per common share
- Comparable EBITDA of $9.4 billion
- Net cash provided by operations of $7.1 billion
- Comparable funds generated from operations of $7.1 billion
- Fourth quarter and other recent highlights
- TC Energy’s Board of Directors approved an eight per cent increase in the quarterly common share dividend to $0.81 per common share for the quarter ending March 31, 2020
- Discontinued the issuance of common shares from treasury at a discount to satisfy purchases under the Dividend Reinvestment and Share Purchase Plan (DRP) commencing with the dividends declared October 31
- Exited 2019 having brought $8.7 billion of new assets into service, realized $3.4 billion from portfolio management activities and attained targeted credit metrics in the year
- Entered into an agreement in December to sell a 65 per cent equity interest in Coastal GasLink which, when combined with the establishment of a secured construction credit facility, is expected to substantially satisfy the Company’s funding requirements through to in-service
- Placed $1.1 billion of the North Montney project in service in January 2020
- In February 2020, approved the $0.9 billion 2023 NGTL Intra-Basin System Expansion for contracted incremental intra-basin firm delivery capacity and the US$0.3 billion Alberta XPress project, an expansion of the ANR Pipeline system
- In January 2020, received a Federal Energy Regulatory Commission (FERC) certificate for the US$0.2 billion Buckeye XPress project on our Columbia Gas system
- Filed an application for approval of a six-year unanimous negotiated settlement on the Canadian Mainline tolls with the Canada Energy Regulator (CER)
- Received approval of the Columbia Gulf rate settlement from FERC
- Received Final Supplementary Environmental Impact Statement (SEIS) for the Keystone XL project in December 2019 and approval from the U.S. Bureau of Land Management in February 2020.
Net income attributable to common shares for the three months ended December 31, 2019 was $1.1 billion or $1.18 per share compared to $1.1 billion or $1.19 per share for the same period last year. For the year ended December 31, 2019, net income attributable to common shares was $4.0 billion or $4.28 per share compared to $3.5 billion or $3.92 per share in 2018. Per share results reflect the dilutive impact of common shares issued under our Corporate At-The-Market (ATM) program in 2018 and under our DRP. Net income attributable to common shares includes a number of specific items that we believe are significant but not reflective of our underlying operations in the period. More information on these items which are excluded from comparable earnings can be found in the table entitled “Reconciliation of net income to comparable earnings” later in the document.
Comparable EBITDA decreased by $138 million to $2.3 billion for the three months ended December 31, 2019 compared to the same period in 2018 primarily due to the net effect of the following:
- lower contribution from Canadian Natural Gas Pipelines primarily reflecting lower flow-through income taxes and depreciation as well as lower incentive earnings in the Canadian Mainline due to recording the full-year impact of the Canadian Mainline 2018-2020 Tolls Review (NEB 2018 Decision) in fourth quarter 2018. Due to the flow-through treatment of certain expenses including income taxes and depreciation on our Canadian rate-regulated pipelines, the decrease in these expenses impacts our comparable EBITDA despite having no significant effect on net income
- lower contribution from Liquids Pipelines primarily due to decreased volumes on the Keystone Pipeline System, lower margins on liquids marketing activities and the impact of the sale of an 85 per cent equity interest in Northern Courier on July 17, 2019
- higher contribution from U.S. Natural Gas Pipelines mainly due to incremental earnings from Columbia Gas growth projects placed in service, partially offset by decreased earnings from the sale of certain Columbia midstream assets on August 1, 2019 and from Bison (wholly owned by TC PipeLines, LP) following a 2018 agreement with two customers to pay out their future contract revenues and terminate the contracts
- higher contribution from Power and Storage primarily due to increased Bruce Power results from a higher realized power price and higher volumes, partially offset by lower results from our Alberta cogeneration plants and the sale of the Coolidge generating station on May 21, 2019
- higher equity earnings from our investment in the Sur de Texas pipeline which was placed in service in September 2019, at which time we began recording equity income from operations. Prior to in-service, Sur de Texas equity income primarily reflected an allowance for funds used during construction (AFUDC), net of our proportionate share of interest expense on inter-affiliate loans from its partners. Our share of this interest expense is fully offset in Interest income and other.
Comparable earnings increased by $24 million to $970 million for the three months ended December 31, 2019 compared to the same period in 2018 and were primarily due to the net effect of:
- changes in comparable EBITDA described above
- higher interest income and other as a result of lower realized losses in 2019 compared to 2018 on derivatives used to manage our net exposure to foreign exchange rate fluctuations on U.S. dollar-denominated income
- lower income tax expense primarily due to lower flow-through income taxes in Canadian rate-regulated pipelines and lower comparable earnings before income taxes, partially offset by lower foreign tax rate differentials
- lower depreciation largely in Canadian Natural Gas Pipelines which is fully recovered in tolls as reflected in comparable EBITDA above, therefore having no significant impact on comparable earnings. This was partially offset by increased depreciation in U.S. Natural Gas Pipelines reflecting new projects placed in service
- lower AFUDC primarily due to Columbia Gas and Columbia Gulf growth projects placed in service, partially offset by capital expenditures on our NGTL System and continued investment in our Mexico projects.
Comparable earnings per common share for the three months ended December 31, 2019 was consistent with 2018 at $1.03 and reflects the dilutive impact of common shares issued under our DRP in fourth quarter 2018 and throughout 2019.
Comparable EBITDA in 2019 increased by $803 million to $9.4 billion compared to the same period in 2018 primarily due to the net effect of the following:
- increased contribution from U.S. Natural Gas Pipelines mainly attributable to incremental earnings from Columbia Gas and Columbia Gulf growth projects placed in service, partially offset by decreased earnings from Bison (wholly owned by TC PipeLines, LP) contract terminations and from the sale of certain Columbia midstream assets on August 1, 2019
- increased contribution from Liquids Pipelines primarily resulting from higher volumes on the Keystone Pipeline System and earnings from liquids marketing activities, partially offset by decreased earnings as a result of the sale of an 85 per cent equity interest in Northern Courier on July 17, 2019
- higher contribution from Power and Storage primarily attributable to increased Bruce Power results from a higher realized power price, partially offset by the sale of our interests in the Cartier Wind power facilities in late 2018 and the sale of the Coolidge generating facility on May 21, 2019
- lower contribution from Canadian Natural Gas Pipelines mainly due to lower flow-through income taxes on the Canadian Mainline reflecting the impact of the NEB 2018 Decision and on the NGTL System as a result of accelerated tax depreciation, enacted by the Canadian federal government, partially offset by higher rate base earnings and depreciation on the NGTL System as additional facilities were placed in service. Due to the flow-through treatment of certain expenses, including income taxes and depreciation on our Canadian rate-regulated pipelines, the accelerated tax depreciation changes in 2019 and increased depreciation expense impacts our comparable EBITDA despite having no significant effect on net income
- foreign exchange impact of a stronger U.S. dollar on the Canadian dollar equivalent earnings from our U.S. operations.
Comparable earnings in 2019 increased by $371 million or $0.28 per common share to $3.9 billion or $4.14 per common share compared to 2018 primarily due to the net effect of:
- changes in comparable EBITDA described above
- higher income tax expense due to increased comparable earnings before income taxes and lower foreign tax rate differentials, partially offset by lower flow-through income taxes on the Canadian Mainline reflecting the impact of the NEB 2018 Decision and on the NGTL System from the effect of accelerated tax depreciation
- higher depreciation largely in U.S. Natural Gas Pipelines reflecting new projects placed in service. Canadian Natural Gas Pipelines’ depreciation also increased, however it is fully recovered in tolls on a flow-through basis as discussed in comparable EBITDA above, and therefore it has no significant impact on comparable earnings
- increased interest expense primarily as a result of long-term debt issuances, net of maturities, the foreign exchange impact on translation of U.S. dollar-denominated interest and higher levels of short-term borrowings, partially offset by higher capitalized interest
- lower AFUDC primarily due to Columbia Gas and Columbia Gulf growth projects placed in service, partially offset by capital expenditures on our NGTL System and continued investment in our Mexico projects.
Comparable earnings per share in 2019 and 2018 were impacted by the dilutive impact of common shares issued under our Corporate ATM program in 2018 and under our DRP.
Notable recent developments include:
Canadian Natural Gas Pipelines:
- Coastal GasLink Pipeline Project: We are proceeding with construction of the estimated $6.6 billion Coastal GasLink natural gas pipeline project. Coastal GasLink will be a 670 km (416 miles) pipeline with an initial capacity of approximately 2.2 PJ/d (2.1 Bcf/d) with potential expansion capacity up to 5.4 PJ/d (5.0 Bcf/d). All necessary regulatory permits for the initial capacity have been received and the project is expected to enter service in 2023. Coastal GasLink has signed project and community agreements with all 20 elected Indigenous bands along the pipeline route, confirming strong support from Indigenous communities across the province.In December 2019, we entered into an agreement to sell 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). Concurrent with the sale, TC Energy expects that Coastal GasLink will finalize a secured construction credit facility with a syndicate of banks to fund up to 80 per cent of the project’s capital expenditures during construction. Both transactions are expected to close in the first half of 2020 subject to customary regulatory approvals and consents, including the consent of LNG Canada. As part of the transaction, we will be contracted by the Coastal GasLink Limited Partnership to construct and operate the pipeline.Under the terms of the sale, we will receive upfront proceeds that include reimbursement of a 65 per cent proportionate share of the project costs incurred as of the closing as well as additional payment streams through construction and operation of the pipeline. We expect to record an after-tax gain of approximately $600 million upon closing of the transaction which includes the gain on sale, required revaluation of our 35 per cent residual ownership to fair market value and recognition of previously unrecorded tax benefits. Upon closing, we expect to account for our remaining 35 per cent investment using equity accounting.The introduction of partners, establishment of a dedicated project-level financing facility, 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 are also committed to working with the 20 First Nations that have executed agreements with Coastal GasLink to provide them an opportunity to invest in the project. As a result, in conjunction with this sale, we will provide an option to the 20 First Nations to acquire a 10 per cent equity interest in Coastal GasLink on similar terms to what has been agreed with KKR and AIMCo.
- NGTL System: On February 12, 2020, we approved the 2023 NGTL Intra-Basin System Expansion for contracted incremental intra-basin firm delivery capacity of 331 TJ/d (309 MMcf/d) for 15-year terms. The expansion includes three segments of pipeline totaling 119 km (74 miles), 90 MW of additional compression and has an estimated capital cost of $0.9 billion with in-service dates commencing in 2023.In October 2019, we announced our West Path Expansion Program, an expansion of our NGTL System and Foothills pipeline system for contracted incremental export capacity onto the Gas Transmission Northwest (GTN) system in the Pacific Northwest. The Canadian portion of the expansion program has an estimated capital cost of $1.0 billion and consists of approximately 103 km (64 miles) of pipeline and associated facilities with in-service dates in fourth quarter 2022 and fourth quarter 2023. This total program is underpinned by approximately 275 TJ/d (258 MMcf/d) of new firm service contracts with terms that exceed 30 years.During 2019, the NGTL System placed approximately $1.3 billion of capacity projects in service.On January 31, 2020, the $1.1 billion Aitken Creek section of the North Montney project was also placed in service, supplementing $0.3 billion of facilities completed in 2019. The balance of the $1.6 billion project is expected to be in service in second quarter 2020. The total project will add approximately 206 km (128 miles) of new pipeline along with three compressor units and 14 meter stations.
In March 2019, the NGTL System Rate Design and Services Application was filed with the National Energy Board (NEB), now the CER, which included a contested settlement agreement negotiated with its Tolls, Tariff, Facilities and Procedures (TTFP) committee. The settlement is supported by the majority of the TTFP committee members. The application addresses rate design, terms and conditions of service for the NGTL System and a tolling methodology for the North Montney Mainline (NMML). Given the complexity of the issues raised in the application, the CER held a public hearing in fourth quarter 2019. We anticipate a decision in first quarter 2020.
The NGTL System’s 2018-2019 Revenue Requirement Settlement expired on December 31, 2019. We continue to work with NGTL stakeholders towards a new revenue requirement arrangement for 2020 and subsequent years. While these discussions continue, the NGTL System is operating under interim tolls for 2020 that were approved by the CER on December 6, 2019.
- Canadian Mainline: In December 2019, TC Energy filed an application on the Canadian Mainline tolls with the CER for approval of a six-year unanimous negotiated settlement with its customers and other interested parties encompassing a term from January 2021 through December 2026. The settlement sets a base equity return of 10.1 per cent on 40 per cent deemed common equity and includes an incentive to either decrease costs and/or increase revenues on the pipeline with a beneficial sharing mechanism to both the shippers and us.
U.S. Natural Gas Pipelines:
- Alberta XPress: On February 12, 2020, we approved the Alberta XPress project, an expansion project on the ANR Pipeline system that utilizes existing capacity on the Great Lakes and Canadian Mainline systems to connect growing supply from the Western Canadian Sedimentary Basin (WCSB) to U.S. Gulf Coast LNG export markets. The anticipated in-service date is in 2022 with estimated project costs of US$0.3 billion.
- Buckeye XPress: The Buckeye XPress project represents an upsizing of an existing pipeline replacement project in conjunction with our Columbia Gas modernization program. The US$0.2 billion cost to upsize the replacement pipe and install compressor upgrades will enable us to offer 290 TJ/d (275 MMcf/d) of incremental pipeline capacity to accommodate growing Appalachian production. The FERC certificate for Buckeye XPress was received in January 2020 and we expect the project to be placed in service in late 2020.
- GTN XPress: In October 2019, TC PipeLines, LP approved the GTN XPress project which is an integrated reliability and expansion project on the GTN system that will provide for the transport of additional volumes enabled by the NGTL System’s West Path Delivery Program discussed previously. GTN XPress is expected to be complete in late 2023 with an estimated total cost of US$0.3 billion.
- Columbia Gulf Rate Settlement: In December 2019, FERC approved the uncontested Columbia Gulf rate settlement which set new recourse rates for Columbia Gulf effective August 1, 2020 and instituted a rate moratorium through August 1, 2022. The revised rates are not expected to have a significant impact on our U.S. Natural Gas Pipelines segment comparable earnings.
Mexico Natural Gas Pipelines:
- Villa de Reyes: Construction for the Villa de Reyes project is ongoing with a phased in-service anticipated to commence in second quarter 2020 with full in-service by the end of 2020. We have received capacity payments under force majeure provisions up to May 2019 but have not commenced recording revenues.
- Tula: The East Section of the Tula pipeline is available for interruptible transportation services until regular service under the Comisión Federal Electricidad (CFE) contract commences. Construction of the central segment of the Tula project has been delayed due to a lack of progress by the Secretary of Energy, the governmental department responsible for Indigenous consultations. The west section of Tula is mechanically complete and anticipated to go into service as soon as gas becomes available. Project completion is expected approximately two years after the consultation process is successfully concluded. We have received capacity payments under force majeure provisions up to June 2019 but have not commenced recording revenues.
- CFE Arbitration: In June 2019, CFE filed requests for arbitration under the Villa de Reyes and Tula contracts. The arbitration processes, and their fixed capacity payments under force majeure, have been suspended while negotiations with respect to the transportation services agreements progress.
- Keystone XL: The U.S. Department of State issued a Final SEIS for the project in December 2019. The Final SEIS supplements the 2014 Keystone XL SEIS and underpins the Bureau of Land Management and U.S. Army Corps of Engineers permits.On February 7, 2020, we received approval from the U.S. Bureau of Land Management allowing for the construction of the Keystone XL pipeline across federally managed lands in Montana and land managed by the U.S. Army Corps of Engineers at the Missouri River.In March 2019, the U.S. President issued a new Presidential Permit for the Keystone XL project which superseded the 2017 permit. This resulted in the dismissal of certain legal claims related to the 2017 permit and an injunction barring certain pre-construction activities and construction of the project. The lawsuits were expanded to include challenges to the 2019 Presidential Permit and are proceeding in federal district court in Montana.We continue to actively manage legal and regulatory matters as the project advances.
Power and Storage:
- Bruce Power – Life Extension: Bruce Power’s Unit 6 Major Component Replacement (MCR) outage commenced on January 17, 2020 and is expected to be completed in late 2023. We expect to invest approximately $2.4 billion in Bruce Power’s life extension programs through 2023 which includes the Unit 6 MCR and approximately $5.8 billion post-2023. Future MCR investments will be subject to discrete decisions for each unit with specified off-ramps available for Bruce Power and the Independent Electricity System Operator (IESO).
- Ontario Natural Gas-fired Power Plants: On July 30, 2019, we entered into an agreement to sell our 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 proceeds of approximately $2.87 billion, subject to timing of the close and related adjustments. The sale is expected to close by the end of first quarter 2020 subject to conditions which include regulatory approvals and Napanee reaching commercial operations as outlined in the agreement.
- Common Share Dividend: Our Board of Directors declared a quarterly dividend of $0.81 per common share for the quarter ending March 31, 2020 on TC Energy’s outstanding common shares. The quarterly amount is equivalent to $3.24 per common share on an annualized basis and represents an increase of eight per cent. This is the twentieth consecutive year the Board has raised the dividend.
- Dividend Reinvestment and Share Purchase Plan: Under the DRP, eligible holders of common and preferred shares of TC Energy can reinvest their dividends and make optional cash payments to obtain additional TC Energy common shares. From July 1, 2016 to October 31, 2019, common shares were issued from treasury at a discount of two per cent to market prices over a specified period. The participation rate by common shareholders in the DRP in 2019 was approximately 34 per cent, resulting in $711 million reinvested in common equity under the program.Commencing with the dividends declared October 31, 2019, common shares purchased under TC Energy’s DRP will no longer be satisfied with shares issued from treasury at a discount, but rather will be acquired on the open market at 100 per cent of the weighted average purchase price.
Teleconference and Webcast:
We will hold a teleconference and webcast on Thursday, February 13, 2020 to discuss our fourth quarter and year-end 2019 financial results. Russ Girling, President and Chief Executive Officer, Don Marchand, Executive Vice-President, Strategy and Corporate Development and Chief Financial Officer, and other members of the TC Energy executive leadership team will discuss the financial results and Company developments at 2 p.m. MST / 4 p.m. EST.
Members of the investment community and other interested parties are invited to participate by calling 800.478.9326 or 416.340.2219 (Toronto area). Please dial in 10 minutes prior to the start of the call. No pass code is required. A live webcast of the teleconference will be available on TC Energy’s website at www.TCEnergy.com/events or via the following URL: www.gowebcasting.com/10492.
A replay of the teleconference will be available two hours after the conclusion of the call until midnight (EST) on February 20, 2020. Please call 800.408.3053 or 905.694.9451 (Toronto area) and enter pass code 8119293#.
The audited annual consolidated financial statements and Management’s Discussion and Analysis (MD&A) are available under TC Energy’s profile on SEDAR at www.sedar.com, with the U.S. Securities and Exchange Commission on EDGAR at www.sec.gov/info/edgar.shtml and on our website at www.TCEnergy.com.
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.