The Daley Note: August 17, 2023
Seeking a fresh corporate makeover, TC Energy (TRP) plans to spin off its crude oil and liquids pipelines into a separate company to focus on natural gas and renewable opportunities.
TC Energy announced the new strategy on July 27. The Canadian midstream company owns four liquids pipelines: Keystone, MarketLink, Grand Rapids, and White Spruce. TRP in 2022 reported Adj. EBITDA of C$1,398MM for these pipelines.
Using East Daley Analytics’ Financial Blueprints, we model a standalone liquids company would generate Adj. EBITDA of C$1,436MM in 2023. In its presentation on the spinoff, TRP forecasts the new liquids pipeline company would achieve a 2-3% CAGR, in line with EDA’s own view on these assets.
In the latest TC Energy Financial Blueprint, we forecast the Liquids Pipelines segment to post 2026 Adj. EBITDA of C$1,531MM, a 2.9% CAGR from 2022-26. The anticipated performance of the spinoff relative to EDA’s forecast for the TRP pipelines is displayed in the figure.
Keystone Pipeline transports Canadian crude oil from Hardisty, AB to Cushing, OK and Patoka, IL. With a capacity of 620 Mb/d, Keystone utilization averaged 92% in 2022. MarketLink, a 750 Mb/d pipeline, picks up barrels in Cushing and delivers them to the Houston and Port Arthur markets.
With Canada’s Trans Mountain Expansion (TMX) on the horizon, TRP has increased its committed oil volumes to 88%: 545 Mb/d for Keystone and 660 M/d for MarketLink. These commitments will help protect Keystone volumes from migrating when TMX starts (planned in 1Q24), while also increasing MarketLink’s current flows.
Based in Alberta, the White Spruce and Grand Rapids pipelines would account for ~5% of EBITDA of a pro forma liquids company. White Spruce is a northern Alberta gathering line connecting Canadian Natural Resources production to Grand Rapids Pipeline. Jointly owned by TC Energy and Petro China Canada, the Grand Rapids pipe gathers and delivers crude from the Western Athabasca oil sands to Edmonton, AB.
Barring outages or political interference, the new liquids pipeline spinoff should have stable revenues streams that will serve it well in the future. – Kristine Oleszek and Zach Krause Tickers: TRP.
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