TC Energy(TRP) - 2022 Q4 - Annual Report

Overview and Highlights Financial and Operational Highlights TC Energy reported record 2022 comparable EBITDA of $9.9 billion and EPS of $4.30, with a 3.3% dividend increase and projected 5-7% EBITDA growth for 2023 Full Year 2022 Financial Performance | Metric | 2022 | 2021 | | :--- | :--- | :--- | | Net Income Attributable to Common Shares | $0.6 billion | $1.8 billion | | Net Income per Common Share | $0.64 | $1.87 | | Comparable EBITDA | $9.9 billion | $9.4 billion | | Comparable Earnings per Common Share | $4.30 | $4.26 | - The quarterly common share dividend increased by 3.3% to $0.93 per share (equivalent to $3.72 annually), marking the 23rd consecutive year of increases[1][4] - The 2023 financial outlook projects comparable EBITDA to be 5-7% higher than 2022, with comparable EPS modestly higher[3] - In 2022, $8.8 billion of new projects were sanctioned and $5.8 billion placed in service, with ~$6 billion expected in service for 2023[4] - Operational records were set on the NGTL System (16.4 Bcf delivery) and U.S. Natural Gas Pipelines (36.6 Bcf peak delivery)[3] CEO Message The CEO highlighted record 2022 comparable EBITDA of $9.9 billion, a $34 billion capital program, a $5+ billion asset divestiture plan, and addressed the $650 million Keystone Pipeline liability and $14.5 billion Coastal GasLink cost increase - A $34 billion fully sanctioned secured capital program is advancing, supporting 3-5% annual dividend growth[9] - A $5+ billion asset divestiture program is underway to accelerate deleveraging and self-fund growth[10] - A $650 million (US$480 million) environmental remediation liability was accrued for the Keystone Pipeline oil release, prior to insurance recoveries[11] - The Coastal GasLink project cost estimate increased to ~$14.5 billion, with a potential $1.2 billion further increase if construction extends into 2024[12] Financial Outlook TC Energy projects 2023 comparable EBITDA to be 5-7% higher than 2022, with capital spending between $11.5 billion and $12.0 billion, driven by NGTL and Mexico pipelines, offset by Keystone and higher interest - Key 2023 earnings growth drivers include NGTL System expansion, increased Mexico pipeline contributions, and full-year impact of 2022 in-service assets[15] - Earnings growth will be partially offset by reduced Keystone Pipeline contributions from the Milepost 14 incident and lower margins, alongside higher interest expenses[15] 2023 Capital Spending Outlook by Segment | Segment | Expected 2023 Capital Spending | | :--- | :--- | | Canadian Natural Gas Pipelines | ~$2.8 billion | | U.S. Natural Gas Pipelines | ~US$1.9 billion | | Mexico Natural Gas Pipelines | ~US$2.1 billion | | Liquids Pipelines | ~$0.1 billion | | Power and Energy Solutions | ~$1.0 billion | | Total | ~$11.5 to $12.0 billion | Notable Recent Developments Canadian Natural Gas Pipelines Developments Coastal GasLink project cost increased to $14.5 billion, resulting in a $3.0 billion impairment, while the NGTL System placed $3.0 billion of projects in service and sanctioned the $0.6 billion VNBR project - The Coastal GasLink project cost estimate increased to ~$14.5 billion, leading to a $3.0 billion pre-tax impairment ($2.6 billion after-tax) in Q4 2022[23][25] - The NGTL System placed approximately $3.0 billion of capacity projects in service during 2022[25] - The $0.6 billion Valhalla North and Berland River (VNBR) project was sanctioned, adding 500 MMcf/d capacity to the NGTL System by 2026[26] U.S. Natural Gas Pipelines Developments The Alberta XPress project entered service, connecting WCSB to U.S. Gulf Coast LNG, while the Gillis Access project and its extension were sanctioned, and ANR reached a rate case settlement - The Alberta XPress project, connecting Western Canadian gas to U.S. Gulf Coast LNG markets, was placed in service in January 2023[30] - The Gillis Access project (US$0.4 billion) and an extension (US$0.3 billion) were sanctioned to connect Haynesville basin supplies to Louisiana markets[30][28] - ANR reached a settlement-in-principle in its Section 4 rate case, with FERC approval anticipated in early 2023[30] Mexico Natural Gas Pipelines Developments TC Energy formed a strategic alliance with CFE, consolidating contracts and reaching FID on the US$4.5 billion Southeast Gateway Pipeline, while progressing Villa de Reyes and Tula pipeline sections - A strategic alliance with CFE was announced, consolidating multiple TSAs into a single U.S. dollar-denominated contract through 2055 and resolving prior arbitrations[29] - An FID was reached for the US$4.5 billion, 1.3 Bcf/d Southeast Gateway Pipeline, expected in-service by mid-2025[29] Liquids Pipelines Developments A Keystone Pipeline rupture in Kansas released 12,937 barrels, incurring a $650 million remediation liability largely recoverable by insurance, with ongoing regulatory rate proceedings - A $650 million environmental remediation liability was accrued for the Keystone Pipeline 'Milepost 14 Incident' in Kansas, with 90% of the 12,937 barrel release recovered[33] - A corresponding $650 million asset was recorded, representing expected recovery of remediation costs via insurance[34] - A CER decision on a Keystone tolling complaint resulted in a $38 million adjustment, which Keystone is seeking to review[34] Power and Energy Solutions Developments The Bruce Power Unit 3 MCR program is set to begin in March 2023, with an increased contract price, and pre-construction started on the $146 million, 81 MW Saddlebrook Solar project - The Bruce Power Unit 3 MCR program is scheduled from March 2023 to 2026, with its contract price increased on April 1, 2022, reflecting investments[36][37] - Pre-construction commenced on the 81 MW Saddlebrook Solar project in Alberta, with an expected capital cost of $146 million and 2023 completion[38] Corporate Developments TC Energy announced a $5+ billion asset divestiture program, reinstated its DRP with 33% participation raising $607 million, and raised $1.8 billion from a common share offering - A $5+ billion asset divestiture program was announced to accelerate deleveraging and provide self-funding for growth[42][41] - Issued 28.4 million common shares at $63.50 each, raising ~$1.8 billion gross proceeds to fund the Southeast Gateway Pipeline[42] - The DRP saw approximately 33% participation, resulting in $607 million reinvested in common equity in 2022[42] Capital Program Secured Projects TC Energy is advancing a $34 billion secured capital program, placing $5.8 billion of projects in service in 2022, including NGTL, Coastal GasLink, Southeast Gateway, and Bruce Power life extension Secured Capital Program Highlights (in billions) | Project Area | Estimated Cost | | :--- | :--- | | NGTL System (2023-2025+) | $4.2 | | Coastal GasLink (TC Share) | $5.4 | | U.S. Natural Gas Pipelines | US$6.9 | | Mexico Natural Gas Pipelines | US$5.6 | | Bruce Power - Life Extension | $4.3 | | Total Secured Projects | $34.0 | - Approximately $5.8 billion of capital projects were placed in service in 2022, primarily within natural gas pipeline segments[97] Projects Under Development TC Energy is developing RNG transportation hubs, Ontario and Canyon Creek Pumped Storage projects, the Alberta Carbon Grid, and exploring hydrogen hubs with Nikola and Hyzon - Developing a network of 10 Renewable Natural Gas (RNG) transportation hubs nationally in collaboration with GreenGasUSA[109] - Advancing energy storage projects, including the 1,000 MW Ontario Pumped Storage and 75 MW Canyon Creek Pumped Storage projects[116][118] - Partnering with Pembina Pipeline on the Alberta Carbon Grid (ACG), a large-scale carbon transportation and sequestration system[122] - Evaluating a hydrogen production hub in Crossfield, Alberta, with 60-150 tonnes per day capacity, and pursuing joint development with Nikola and Hyzon[125][126] Segment Performance Analysis Canadian Natural Gas Pipelines Q4 2022 saw a $2.6 billion segmented loss due to a $3.0 billion Coastal GasLink impairment, but comparable EBITDA increased by $94 million to $768 million from NGTL System expansion and Canadian Mainline earnings Canadian Natural Gas Pipelines Q4 Financials (millions of $) | Metric | Q4 2022 | Q4 2021 | | :--- | :--- | :--- | | Segmented (Losses)/Earnings | (2,592) | 389 | | Comparable EBITDA | 768 | 674 | | Comparable EBIT | 456 | 389 | - Segmented earnings were heavily impacted by a $3.0 billion pre-tax impairment charge on the Coastal GasLink LP equity investment[130] - NGTL System net income increased by $21 million to $185 million in Q4 2022, driven by a higher average investment base from system expansions[131] U.S. Natural Gas Pipelines Q4 2022 segmented earnings increased by $64 million to $882 million, with comparable EBITDA rising US$23 million to US$842 million, driven by marketing, new projects, and mineral rights earnings U.S. Natural Gas Pipelines Q4 Financials | Metric | Q4 2022 | Q4 2021 | | :--- | :--- | :--- | | Segmented Earnings (Cdn$) | $882 million | $818 million | | Comparable EBITDA (US$) | $842 million | $819 million | | Comparable EBIT (US$) | $671 million | $644 million | - Comparable EBITDA growth was driven by higher marketing earnings, new projects, and mineral rights earnings[142] Mexico Natural Gas Pipelines Q4 2022 segmented earnings decreased by $27 million to $96 million due to a $92 million credit loss provision, but comparable EBITDA increased by US$34 million to US$156 million from new pipeline sections Mexico Natural Gas Pipelines Q4 Financials | Metric | Q4 2022 | Q4 2021 | | :--- | :--- | :--- | | Segmented Earnings (Cdn$) | $96 million | $123 million | | Comparable EBITDA (US$) | $156 million | $122 million | | Comparable EBIT (US$) | $139 million | $101 million | - Segmented earnings were negatively impacted by a $92 million expected credit loss provision, excluded from comparable measures[147] - Comparable EBITDA increased due to higher revenues from the commercial in-service of VdR North and Tula East in Q3 2022[148] Liquids Pipelines Q4 2022 segmented earnings decreased by $51 million to $322 million, with comparable EBITDA down $16 million to $364 million, due to lower Keystone rates/volumes and a CER tolling decision Liquids Pipelines Q4 Financials (millions of $) | Metric | Q4 2022 | Q4 2021 | | :--- | :--- | :--- | | Segmented Earnings | 322 | 373 | | Comparable EBITDA | 364 | 380 | | Comparable EBIT | 279 | 300 | - Comparable EBITDA was negatively affected by lower rates and volumes on the Keystone Pipeline's U.S. Gulf Coast section and a CER tolling decision[154] - The decline was partially offset by increased contributions from liquids marketing activities due to higher margins[154] Power and Energy Solutions Q4 2022 segmented earnings increased by $107 million to $298 million, with comparable EBITDA up $35 million to $203 million, driven by higher Bruce Power contract prices Power and Energy Solutions Q4 Financials (millions of $) | Metric | Q4 2022 | Q4 2021 | | :--- | :--- | :--- | | Segmented Earnings | 298 | 191 | | Comparable EBITDA | 203 | 168 | | Comparable EBIT | 184 | 148 | - Comparable EBITDA growth was primarily due to higher contributions from Bruce Power, reflecting a higher contract price[159] Bruce Power Key Metrics (TC Energy's Share) | Metric | Q4 2022 | Q4 2021 | | :--- | :--- | :--- | | Comparable EBITDA & EBIT | $140 million | $106 million | | Plant Availability | 87% | 89% | | Realized Power Price | $92/MWh | $79/MWh | Corporate and Other Financial Items Q4 2022 Corporate segment reported a $4 million loss, with interest expense rising $111 million to $722 million, AFUDC increasing $43 million to $115 million, and net cash from operations up $224 million to $2.0 billion - Interest expense in comparable earnings rose to $722 million in Q4 2022 from $611 million in Q4 2021, driven by higher rates and debt levels[169][170] - AFUDC increased to $115 million in Q4 2022 from $72 million in Q4 2021, largely due to reactivated AFUDC on TGNH assets and the Southeast Gateway project[170] Q4 Cash Flow Summary (millions of $) | Metric | Q4 2022 | Q4 2021 | | :--- | :--- | :--- | | Net Cash Provided by Operations | 2,025 | 1,801 | | Comparable Funds Generated from Operations | 2,285 | 2,073 | Financial Statements Condensed Consolidated Statement of Income Q4 2022 revenues reached $4.04 billion, but a $3.05 billion impairment led to a net loss of $1.45 billion or ($1.42) per share, compared to $1.12 billion net income in Q4 2021 Q4 2022 Income Statement Highlights (millions of $) | Line Item | Q4 2022 | Q4 2021 | | :--- | :--- | :--- | | Revenues | 4,041 | 3,584 | | Impairment of Equity Investment | (3,048) | — | | Net (Loss)/Income Attributable to Common Shares | (1,447) | 1,118 | | Net (Loss)/Income per Common Share - Basic | ($1.42) | $1.14 | Condensed Consolidated Statement of Cash Flows Q4 2022 net cash from operations increased to $2.03 billion, while net cash used in investing rose to $3.01 billion, and financing activities used $541 million Q4 2022 Cash Flow Summary (millions of $) | Activity | Q4 2022 | Q4 2021 | | :--- | :--- | :--- | | Net Cash Provided by Operations | 2,025 | 1,801 | | Net Cash Used in Investing Activities | (3,010) | (1,391) | | Net Cash (Used in)/Provided by Financing Activities | (541) | (2,653) | Condensed Consolidated Balance Sheet As of December 31, 2022, total assets reached $114.3 billion, total liabilities $80.2 billion, and total equity $34.1 billion, reflecting growth in plant, property, and equipment Balance Sheet Summary (millions of $) | Item | Dec 31, 2022 | Dec 31, 2021 | | :--- | :--- | :--- | | Total Assets | 114,348 | 104,218 | | Total Liabilities | 80,232 | 70,822 | | Total Equity | 34,116 | 33,396 |