TC Energy Corporation Q3 FY2024 earnings call

• Focused on safety, operational excellence, and project execution, delivering strong operational and financial results. - Successfully completed the spinoff of the liquids pipelines business into South Bow on October 1st. - Made significant progress on major projects like Bruce Power Unit 3 MCR and Southeast Gateway. - Revised 2024 net capital expenditures to between $7.4 billion and $7.7 billion, a midpoint reduction of approximately 8% from the initial outlook. - Southeast Gateway's estimated capital cost reduced to between $3.9 billion and $4.1 billion, 11% lower than the initial estimate. - Achieved mechanical completion on all major onshore facilities of Southeast Gateway, with only 1.4 kilometers of shallow water pipe installation remaining, expected to be completed in the fourth quarter.

In the third quarter, comparable EBITDA was up 6% compared to the third quarter of last year. Canada Gas saw higher rate-based earnings from continued system expansions on NGTL and Foothills. US Gas had growth and modernization projects like the Gillis Access Project but was offset by the closing of the Portland Natural Gas sale in August. Mexico had higher equity earnings at Sur de Texas due to the strengthening US Dollar over the peso. Power and Energy Solutions had improved contributions from Bruce Power, which achieved 98% availability. The liquid segment decreased primarily due to lower margins for marketing activities, partially offset by higher volumes on the US Gulf Coast system. Revenue contributions: Comparable EBITDA growth was driven by various segments with Canada Gas, US Gas, Mexico, and Power and Energy Solutions all playing roles in the overall performance.

• 2024 comparable EBITDA is expected to be at the upper end of the $11.2 billion to $11.5 billion range. - 2024 net capital expenditures are projected to be between $7.4 billion and $7.7 billion. - Expect to place approximately $8.5 billion of assets into service in 2025. - The Board declared a fourth quarter dividend of $0.8225 cents per common share.

• Forward-looking statements are subject to important risks and uncertainties. - Potential risks related to project execution delays, regulatory changes affecting operations, and market fluctuations impacting revenue and earnings.

Q: Can you provide a little bit more color on the project cost down take for Southeast Gateway. What drove that and is -- related to that, what is the probability that commercial service may start earlier than the mid 2025 timeframe, since mechanical completion is earlier?

A: Yeah, there's a lot there and I'll try to unpack that for you. First of all, with respect to the cost savings, it's just really good project execution. And you could think of about $140 million in savings on the procurement side. So we were able to buy materials and equipment for less. There is about $230 million in savings associated with more efficient construction and civil works activities. And those two things allowed us to release additional contingency of about $130 million. With respect to the power plants, I would just say that CFE's power plants generally remain on track. And the two that we're most focused on are the [Meridia and Belladola] (ph) plants, and both of those are tracking for Q1 2025 in service. With respect to in service, I would just say that we're meeting with CFE on a consistent basis to ensure that we have alignment around the various project completion activities, which include both the favorable impact on tolls due to the lower costs, as well as the potential for an accelerated project completion date and payment date. And those discussions are continuing and we'll have better line of sight on that with respect to the timing of in-service and payment once we get a little further down the road with the project construction activities.

Q: How should we think about the thread the needle with leverage. So will this be more of a self-help, organic growth-focused, organic CapEx-focused endeavor, or are you contemplating additional asset sales from here to complement that?

A: Good morning, Theresa. It's Sean. I'll take a stab at that one. Great question. I think maybe let me start just with the 2024 plan to give you context of what the levers that we have been pulling on the de-leveraging plan and we'll give you a sense of what 2025 and forward looks like. As we entered 2024 with 4.75 times squarely in mind for year end, we were relying on EBITDA performance, capital efficiency, and CapEx and asset sales. And we were guiding kind of our internal planning conservatively on EBITDA, conservatively on CapEx, and we targeted about $3 billion worth of asset sales for this year. What you're seeing in today's quarterly results, we're at the high end of EBITDA, a couple hundred million ahead on EBITDA, $700 million ahead on CapEx. That's $1 billion. And as Francois mentioned, $1 billion in savings, it's a [2-for-1] (ph). It's almost the value of $2 billion worth of asset sales. So we have gotten to our leverage target in 2024 through the least cost or highest value retention path possible, really through these CapEx savings as Stan talked about. So a little bit of a preview of Investor Day. The $700 million we're talking to you about today is a component of about $2.5 billion worth of CapEx savings that we have across the next couple of years of our development portfolio, in addition to some of the savings that are hitting EBITDA in the next couple of years. So we're going to get into the composition and the timing of all of that at Investor Day, but that is to say our 2025 leverage target in particular is going to benefit from the same trend on EBITDA and CapEx as we're talking about today. But we'll unpack that further for you in two weeks.