TC Energy Corporation Q2 FY2024 earnings call

• Acknowledged natural disasters impacting operations and praised teams for maintaining safe and reliable operations. - Achieved strong Q2 EBITDA growth of 9% compared to Q2 2023. - Advanced strategic initiatives like South Bow shareholder vote and NGTL five-year settlement agreement. - Secured capital program on track with major projects like Southeast Gateway and Bruce Power Unit 3 MCR, with $1.2B of projects placed into service in 2024 and $7B planned. - Entered into Canada's largest Indigenous Equity Ownership agreement for NGTL and Foothill Systems. - Highlighted strong North American natural gas demand growth outlook, with assets strategically positioned to meet growth. - In Mexico, Southeast Gateway construction on track for mid-2025 completion, with offshore pipe installation near 100% and onshore progress. - Bruce Power had 78% availability in Q2, with Unit 3 MCR on track and Unit 4 MCR starting in early 2025. - Keystone had 94% reliability in Q2, and shareholder support for liquids pipelines spin-off.

TC Energy's comparable EBITDA grew by 9% in the second quarter. Canada Gas saw increases from system expansions on NGTL and Foothills. US Gas placed new pipeline and modernization projects and signed new contracts. Mexico's growth was driven by a new lateral section of Villa de Reyes and higher equity earnings at Sur de Texas. Power and energy solutions had higher contributions from US marketing and Canadian power, offsetting reduced Bruce Power contributions due to planned outages. The liquid segment was lower in Q2 due to additional WCSB egress and lower liquid marketing activities. Revenue contributions: Canada Gas, US Gas, Mexico, Power/energy solutions, and liquids each contributed based on their respective performance.

• Reaffirmed 2024 comparable EBITDA target of $11.2B to $11.5B, driven by 2023 project completions and 2024 projects coming online. - On track to achieve 4.75x debt-to-EBITDA target by year-end, with $2.6B of asset sales announced and trending CapEx to low end of $8B-$8.5B. - Plan to place $9B of assets into service in 2025. - Spin transaction expected to close in early fourth quarter, with TC Energy repaying debt from proceeds and shareholders maintaining dividend per share. - Committed to net CapEx budget of $6B-$7B annually post-2025.

• Potential impact of political changes in Mexico on operations and projects. - Outcomes of legal cases like the Columbia acquisition appeal, with intention to appeal the $400M verdict. - Market risks related to asset valuations and potential fluctuations in natural gas market dynamics.

Q: How does the $2.6 billion of asset sales and CapEx trends affect leverage in 2025 versus the 4.75x target?

A: Francois Poirier noted three levers to address 2025 leverage: improve EBITDA performance, outperform CapEx plan, and consider additional divestitures if attractive valuations arise.

Q: Does the NGTL settlement with indigenous communities suggest a template for future transactions and set a valuation hurdle?

A: Francois Poirier said it could be a template but asset-dependent, with valuations varying by asset class and risk profile, but positive market conditions support robust multiples.

Q: What are key gating factors for Southeast Gateway execution and political landscape impact in Mexico?

A: Stan Chapman mentioned offshore nearshore work completion by Q3 and onshore progress, with Francois Poirier stating President-elect Sheinbaum's supportive stance and U.S. election outcome unlikely to significantly impact Mexico operations.

Q: How does the NGTL settlement's EBITDA uplift work and relate to existing guidance?

A: Sean O’Donnell explained $150M increased depreciation was largely baked into plan, with $50M incentives as incremental upside to plan.

Q: Elaboration on data center opportunities and productivity initiatives?

A: Francois Poirier discussed data center demand driving capacity needs and productivity initiatives having generated $410M of synergies towards $750M goal by 2025.

Q: Growth opportunities in Mexico post-Southeast Gateway and Coastal Gas Link litigation status?

A: Francois Poirier saw Mexico as a growth driver with ancillary lateral opportunities, and Stan Chapman noted Coastal Gas Link litigation settlement progress with net recovery expected.

Q: Impact of US $400M verdict in Columbia acquisition and Southeast Gateway early service on deleveraging?

A: Francois Poirier said appeal planned, with three levers to address 2025 leverage, and Sean O’Donnell noted rating agencies' positive view on project progress.

Q: Storage asset commercial development and power demand impact assessment?

A: Stan Chapman highlighted strong storage contracting and Annesley Wallace mentioned early stages of power demand impact assessment for Bruce Power new build.