Tc Energy Corp. it has announced plans to split into two separate companies by severing its crude oil pipeline business.
The Calgary — based pipeline giant made the announcement-which it called “transformative” – after the close of markets on Thursday, a day before its scheduled conference call to discuss the company’s second-quarter earnings.
According to the company, the transaction will be completed on a tax-free basis, and will result in the creation of two publicly traded companies. Tc Energy will look more like a utility company, with a focus on natural gas infrastructure, as well as nuclear energy storage, pumped hydro and new low-carbon energy options.
The new liquid piping business will be headquartered in Calgary with an office in Houston, Texas. It will focus on enhancing the value of the company’s existing 4,900 miles of crude oil pipelines, including the critical Keystone pipeline system which transports oil from Alberta to refining markets in the U.S. Mid-and U.S. Gulf Coast.
In an interview, TC Energy CEO Francois poirier said the company’s Board of Directors has approved the plan, which comes as a result of a two-year strategic review.
Poirier said now, more than ever, it is clear that all kinds of energy are required to meet global demand. While Tc Energy has its fingers on many different waffles, from natural gas distribution to crude oil shipping to nuclear through its partial ownership of Ontario’s Bruce Poanair, the company thought that splitting its lines of business would allow for faster growth.
“When we took a step back and looked at all the opportunities we had in all our franchises, it was so much more than we could … we followed as a company, given our financial and human capacity, ” Poirier said.
“It’s just a case of having limited resources, and we feel like we can pursue a greater percentage of our established opportunities as two different companies.”
Creating a clean, low-carbon natural gas business will help Tc Energy attract new investors, Poirier said, although he stressed that this does not mean investors are moving away from crude oil pipelines.
“TC Energy’s shareholders today really like that business,” he said.
“It’s just that there’s been so much growth on the gas and low carbon side of the business.”
Under the proposed transaction, TC Energy shareholders will retain their current ownership in TC Energy’s ordinary shares and receive a pro-rata split of the common stock in the new liquid piping company. The number of common shares in the new company to be distributed to TC Energy shareholders will be determined before the closing of the division.
The transaction is expected to be tax-free for TC Energy’s Canadian and U.S. shareholders. Because this will require favorable decisions from U.S. and Canadian tax authorities which will take some time to achieve, Poirier said, a shareholder vote on the transaction will not be held until mid-2024.
The transaction is expected to be completed by the end of 2024.
Tc Energy has been under scrutiny by analysts and credit rating services this year for its significant debt load, as well as for cost overruns on the Coastal GasLink project, which is currently close to completion at B. C.
The projected cost of this project has risen to $ 14.5 billion, up sharply from a previous estimate of $ 11.2 billion and more than double the initial cost estimate of $ 6.2 billion.
On Monday, Tc Energy announced it would sell a 40 percent stake in its Columbia Gas Transmission Systems and Columbia Gulf Transmission to New York-based Global Infrastructure Partners for $ 5.2 billion.
Poirier said it hopes to achieve an additional $ 3 billion in sales from now until the end of 2024, adding that the funds will be used to pay down debt and pave the way for the growth of the two new separate companies.
A portion of Tc Energy’s long-term debt will be transferred to the liquid pipelines company on a cost-effective basis.
“We are unlocking tremendous value, in my opinion, by creating two premium energy infrastructure companies,” Poirier said.
Poirier will remain president and CEO of Tc Energy, while bevinsibirzba — currently executive vice-president and group executive for the company’s natural gas and liquids pipelines — will become CEO of the new liquid pipelines company.
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