On June 4, TC Energy (TRP) shareholders voted in favor of spinning off the company’s Liquids Pipelines segment into South Bow Corp. South Bow will consist of the Keystone, Marketlink, White Spruce, and Grand Rapids pipeline systems. The spinoff will be effective between late 3Q24 and early 4Q24.
South Bow will be saddled with C$7.9B in long-term debt (C$1.5B in hybrids and C6.4B in senior notes) compared to C$3.8B in shareholder equity, bringing total capitalization to C$11.6B. TRP estimates the initial leverage ratio to be 5.0x; management intends to reduce leverage by 0.25-0.50x over the next three years with a long-term target of 4.0x.
In the TRP Financial Blueprint, East Daley Analytics currently forecasts the South Bow assets to make C$1,544MM in 2024 EBITDA (see figure). Our estimate would place South Bow’s leverage ratio at 5.1x, slightly higher than management’s expectations. EDA forecasts South Bow EBITDA will grow at a 4% CAGR from 2024-28. The growth is driven by 3% CAGR in Keystone EBITDA, plus an estimated C$42MM in annual EBITDA from the Blackrod project.
Keystone generates stable earnings from 8-year contracts for 94% of the pipeline’s ~620 Mb/d of capacity. Despite these contracts, Keystone has had reliability issues in the past, most recently an ~14 Mbbl leak in December 2022. Without the cushion of TRP’s natural gas assets, future operational issues may cause volatility to earnings.
South Bow’s second-largest asset is the 750 Mb/d Marketlink Pipeline connecting the Cushing hub to Gulf Coast markets. Marketlink has been a drag on earnings, as a narrow spread between WTI and Magellan East Houston (MEH) prices has discouraged nominations. The asset’s long-term performance will be determined by the South Bow marketing team’s ability to fill capacity in competition with Seaway Pipeline.
EDA will release an independent South Bow model once the transaction is finalized. The complete financial outlook for the South Bow assets as well as TC Energy can be found in EDA’s Financial Blueprints. – Zach Krause and Gage Dwan Tickers: TRP.
New Product: EDA’s LNG Stack
East Daley has added the new LNG Stack to our monthly gas Macro report and data set. The LNG Stack connects LNG export demand to producers through pipelines and processing, for a comprehensive view of the market. Build our LNG data into your own demand forecasts, or use it to validate against your own view of the coming LNG super-build. Learn more about the LNG Stack and Macro.
Meet with East Daley in Europe
As part of East Daley Analytics’ expansion into European markets, we are excited to announce Rob Wilson (VP of Analytics) has an upcoming trip to Europe to present our latest insights on energy markets. Fill out the form to request a meeting.
Sign Up for the NGL Insider
East Daley NGL Insider provides weekly updates on the US NGLs market including supply and demand fundamentals, basin-level views, and analysis of market constraints and infrastructure proposals. We explore sub-basin dynamics and provide market insights on NGL flows, infrastructure, and purity products. Sign up now for the NGL Insider.
Energy Data Studio
East Daley Analytics has launched Energy Data Studio, a platform for our industry-leading midstream data and commodity production forecasts. All clients have access to the new client portal. If you have not yet logged in, please fill out the form to request a registration email be resent.
Energy Data Studio leverages our G&P data set for insights into midstream assets across every major oil and gas basin in North America. Users can navigate detailed visual dashboards by region, pipeline, or individual asset to understand crude oil, natural gas and NGL supply at the most granular level.
Energy Data Studio is available through data downloads from the visual interface, in Excel files, or as a direct feed delivered into subscribers’ workflow via secure file transfer. To learn more about Energy Data Studio, please contact insight@eastdaley.com.
The Daley Note
Subscribe to The Daley Note (TDN) for midstream insights delivered daily to your inbox. The Daley Note covers news, commodity prices, security prices and EDA research likely to affect markets in the short term.