TC Energy Earnings: Coastal GasLink on Track as Firm Returns to Form

TC Energy’s TRP first-quarter results marked a return to form after several recent setbacks with its Coastal GasLink project. The firm reaffirmed its full-year 2023 guidance of 5%-7% EBITDA growth over 2022, and we remain on the high end of that forecast with our CAD 10.6 billion estimate. We expect to maintain our CAD 63 and $47 fair value estimates and narrow moat rating.

Coastal GasLink is progressing as expected, now 87% complete, and on track to be mechanically complete by the end of 2023. No budget increases were announced this time. Comparable EBITDA improved 16% year over year to CAD 2.8 billion, mainly attributed to higher rates on the U.S. and Canadian natural gas systems.

Further, the Milepost 14 spill recovery is nearly complete, with 90% of clean-up activities complete and 98% of released volumes recovered. The Keystone pipeline system remains on reduced pressure while delivering volumes of 585,000 barrels per day. For now, it looks like the financial impact is minimal, as insurance has covered the initial expenses. There are some negative impacts from lower volumes on Keystone, and the potential for penalties at some stage, but the impact also looks to be immaterial.

We await the outcome of TC Energy’s CAD 5 billion-plus asset sale program. The firm has not given guidance on what particular assets may be up for sale, and we suspect there are assets from all parts of the business that could be candidates. We lean toward reducing its liquids pipeline exposure and recycling the capital toward its more material and stronger natural gas businesses in the U.S. and Canada, particularly with growth opportunities linked to LNG and Mexico.