TC Energy Corporation

Thank you for standing by. This is the conference operator. Welcome to the TC Energy 2020 Second Quarter Results Conference Call. As a reminder, all participants are in listen-only mode and the conference is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then 1 on your telephone keypad. Should you need assistance during the conference call, You may signal an operator by pressing star and zero. I would now like to turn the conference over to David Moneta, Vice President, Investor Relations. Please go ahead.

Thanks very much and good morning everyone. I'd like to welcome you to TC Energy's 2020 second quarter conference call. Joining me today are Russ Gurley, President and Chief Executive Officer. Dawn Marchand, Executive Vice President, Strategy and Corporate Development and Chief Financial Officer Francois Poirier, Chief Operating Officer and President, Power and Storage and Mexico Tracy Robinson, President, Canadian Natural Gas Pipelines Stan Chapman, President, U.S. Natural Gas Pipelines Paul Miller, President, Liquids Pipelines Bevan Worspa, Senior Vice President, Liquids Pipelines and Glenn Manuz, Vice President and Controller Russ and Dawn will begin today with some opening comments on our financial results and certain other company developments. A copy of the slide presentation that will accompany their remarks is available on our website. It can be found in the investor section under the heading events and presentations. Following their prepared remarks, we will take questions from the investment community. If you are a member of the media, please contact Jamie Harding following this call and she'd be happy to address your questions. In order to provide everyone from the investment community with an equal opportunity to participate, we ask that you limit yourself to two questions. If you have additional questions, please reenter the queue. Also, we ask that you focus your questions on our industry, our corporate strategy, recent developments, and key elements of our financial performance. If you have detailed questions relating to some of our smaller operations or your detailed financial models, Hunter and I would be pleased to discuss them with you following the call. Before Russ begins, I'd like to remind you that our remarks today will include forward-looking statements that are subject to important risks and uncertainties. For more information on these risks and uncertainties, please see the reports filed by TC Energy, with Canadian Securities Regulators, and with the U.S. Securities Exchange Commission. And finally, during this presentation, we'll refer to measures such as comparable earnings, comparable earnings per share, comparable earnings before interest taxes, depreciation, and amortization, or comparable EBITDA, and comparable funds generated from operations. These and certain other comparable measures are considered to be non-GAAP measures. As a result, they may not be comparable to similar measures presented by other entities. They are used to provide you with additional information on TC Energy's operating performance, liquidity and its ability to generate funds to finance its operations. With that, I'll turn the call over to Russ.

Thank you, David, and good morning, everyone, and thank you all for joining us today. Clearly, we live in unprecedented times with COVID-19 having had a significant impact on people around the world. When the World Health Organization declared it a global pandemic in early March, our business continuity plans were put in place across our whole organization, allowing us to continue to effectively operate our assets and execute on all of our capital programs. All of the services we provide were deemed essential or critical in Canada, the United States and Mexico, given the important role our infrastructure plays in delivering energy to people across this continent. This essential designation included both our daily operations and our construction projects. We take that responsibility extremely seriously and I'm proud to say that we've continued to deliver the energy that millions of people rely on every day and continue to advance all of our construction projects that are vital to powering industries and institutions for many decades yet to come. As we've always done over the past few months, we've continued to conduct our business in a safe and reliable manner while maintaining our workforce, employing thousands of construction workers, fulfilling our obligations to suppliers, and supporting the communities in which we are working. This would not have been possible without the dedication of all of our employees, and I want to acknowledge and thank them and their families for their ongoing efforts to ensure the energy that is vital to the daily lives of so many continues to be delivered seamlessly across North America. I can tell you that your efforts continue to make a big difference. Turning now to our second quarter financial results and other recent developments across our three core businesses, despite the challenges brought by COVID-19, our operations have largely been unimpacted. With a few exceptions, flows and utilization levels remain in line with historic and seasonal norms, underscoring the critical nature of our energy infrastructure assets. With approximately 95% of the comparable EBITDA in our company coming from regulated or long-term contracted assets, we continue to be largely insulated from the short-term volatility associated with volume throughput and commodity prices. As a result, as highlighted in our second quarter report, our $100 billion portfolio of high-quality, long-life energy infrastructure assets continue to produce solid results. We continue to realize the growth expected from our industry-beating capital expansion program, and today we are advancing $37 billion in secured capital projects. In addition, we continue to advance $11 billion of projects under development, including the refurbishment of another five reactors of Bruce Power and as part of their long-term life extension program. Over the last six months, we took significant steps to fund our 2020 capital expenditure program and maintain our strong financial position despite the challenging capital market conditions that we're experiencing. Yvonne Frame-Zawalykut Thank you for joining us. We have a 65-year track record of safe and reliable operations but we recognize that we can always do better. As a result, we remain focused on continuous improvement as well as long-term fundamentals to ensure our business remains sustainable and resilient in an ever-evolving energy landscape. With that as an overview, I'll expand on some recent developments beginning with a brief review of our second quarter financial results. Dawn will provide more detail on our results and liquidity in just a few moments. So excluding certain specific items, comparable earnings were $863 million or $0.92 per common share for the three months ended June 30th compared to $924 million or about $1 per share in 2019. Comparable EBITDA of $2.2 billion while comparable funds generated from operations were about $1.5 billion. For the six months ended June 30th, comparable earnings were $2 billion or $2.10 per common share Thank you for joining us. This was partially offset by lower contributions from our liquids marketing business due to lower margins, as well as lower equity income from Bruce Power due to the Unit 6 NCR program that we commenced at the beginning of the year, and the sale of certain assets that will help fund our secured capital program for many years to come. Next, I'll make a few comments on our three core businesses. First, the international gas pipeline business. Customer demand for our services remains extremely strong despite the COVID-19 impacts on the broader North American economy. Evidence of this can be seen in the volumes transported across our systems with the NGCAL field system receipts averaging about 12.3 billion cubic feet a day, the Canadian mainline western receipts averaging 3.1 billion cubic feet a day, our broader U.S. pipeline network moving about 25 billion cubic Thank you for joining us. and our Coastal GasLink pipeline project in British Columbia, which will play a very important role in delivering clean Canadian natural gas to Asian markets that will displace coal. During the second quarter, the NGTL system held a capacity optimization open season to assist customers in optimizing their transportation service needs and align system expansions with customer growth requirements. The open season confirmed that all of our proposed system expansion projects will continue to be required to meet aggregate system demand, although the in-service dates for some of those facilities has moved. As a result, a certain amount of the capital spending plan for 2020 and 2021 will be made in 2022 to 2024. The net impact of these referrals, together with some expected increasing costs on the 2021 expansion program, will see us invest a total of about $9.9 billion, up from $9.4 billion on the 21 program. These changes have been reflected in the Secured Capital Projects table in our quarterly report. Turning to our U.S. natural gas pipeline business, where our expansion plans now include an incremental investment of approximately $400 million U.S. to replace, upgrade, and modernize certain facilities on the highly utilized section of of the ANR pipeline system. The program, which is known as the Elwood Power ANR Horse Power Replacement Project, will reduce emissions along the system and is another good example of an in-corridor expansion to meet growing demand utilizing our existing facilities and our existing right-of-ways. Also in the U.S. pipelines business, in the coming days, our Columbia gas transmission system intends to file a Section 4 rate case with FERC, requesting an increase in its maximum transportation rates effective February 1, 2021. It's Columbia's first rate case filing in over 20 years. Thank you very much. Finally, in natural gas pipelines, construction activities continue on the 2.1 billion cubic feet of a coastal gasoline project that will connect abundant Western Canadian sedimentary basin natural gas reserves to the LNG Canada plant. to export from Kitimat, British Columbia. Field activity continues to increase along the route following the spring thaw. As we ramp up construction, our focus will remain on the health and safety of our employees, our contractors, and the communities through strict adherence to our COVID-19 protocols. Ongoing work includes the construction of roads, bridges, worker accommodations, and grading. Pipe delivery also continues with more than 50%. of the required pipes supplied to site, and the mainline mechanical construction activities planned for the balance of the summer. In May, as you know, we completed the sale of a 65% interest in the coastal gasoline project and entered into a secured long-term project financing credit facility to fund the majority of the construction costs. This resulted in combined net proceeds of approximately $2.1 billion. Looking forward, we'll continue to work with Thank you for joining us. Keystone continues to produce solid results as it serves important markets in the U.S. Midwest and Gulf Coast and is underpinned by long-term take-or-pay contracts with very strong counterparties. We are very pleased with yesterday's decision by President Trump to sign a new presidential permit for the base Keystone system. The new permit will allow us to respond to market demand and fully utilize the Keystone pipeline system to safely deliver additional crude oil from Canada to refining centers in the U.S. Midwest and the Gulf Coast. This new presidential permit will allow us to realize the benefits from the 50,000 barrel a day open season conducted in June 2019 and would anticipate starting to increase the flows in 2021. The additional crude oil that will be delivered by the Keystone Pipeline will increase the secure and reliable source of Canadian oil to meet growing demand from refineries and markets in the United States. Also in the liquids business, we continue to advance Thank you for joining us. at the same time we continue to seek authorizations from the U.S. Army Corps of Engineers for the necessary permits and approvals to reconvene U.S. pipeline mainline pipeline construction in 2021 Keystone XL continues to be a very important project for both Canada and the United States it will create thousands of high paying union jobs and advance energy security in both nations in an environmentally sustainable and responsible way Thank you for joining us. Once the project is completed and placed into service, we expect to acquire the government of Alberta's equity investment and refinance the credit facility. Moving forward, we will continue to carefully manage various legal and regulatory matters as we construct this pipeline, which will have the capacity to move approximately 830,000 barrels a day of responsibly produced energy from Canadian oil sands to the continent's largest refining market, which is in the U.S. Gulf Coast. Turning now to our power and storage business, where Bruce Power continued to produce solid results through the first six months of this year. Also, after years of preparation, in January, Bruce Power commenced the work on the Unit 6 Major Component Replacement, or MCR project as we call it, when they took it offline here in January. We expect to invest approximately $2.4 billion in that program, as well as ongoing asset management programs through 2022. Thank you for joining us. Progress is being made on critical path activities as Bruce works to isolate Unit 6 from the remaining units in preparation for the removal of the fuel channels in late third quarter. The impact of the force majeure continues to be evaluated and will ultimately depend on the extent and duration of this global pandemic. Operations and plant outage activities on all other units continued as expected in the second quarter. Finally in power in late April, we did complete the sale of three natural gas fire power plants in Ontario Thank you for joining us. Notably, all of these projects are underpinned by cost of service regulation or long-term contracts giving visibility to the earnings and cash flow they will generate as they enter service. Based on the strength of our financial performance and the promising outlook for the future, earlier this year, TC Energy's Board of Directors increased the quarterly dividend to $0.81 per common share, which is equivalent to $3.24 per share on an annual basis. This represents an 8% increase over the amount declared in 2019 and is the 20th consecutive year that our board has raised the dividend. Over that same timeframe, we have maintained consistently strong coverage ratios with our dividend on average representing a payout of approximately 80% of comparable earnings and 40% of comparable funds generated from operations, leaving us with significantly internally generated cash flow to reinvest in our core businesses. Based on the continued strong performance of our base businesses and the organic growth we expect to realize as we advance our $37 billion secured capital program, we expect to continue to grow our dividend at an average annual rate of 8% to 10% through 2021 and 5% to 7% thereafter. So in summary, I'll leave you with the following key points. Today, we are a leading North American energy infrastructure company with a very strong track record of delivering long-term shareholder value. Our assets provide essential service to the functioning of North American society and the economy, and the demand for our services remains strong. We have five significant platforms for growth, Canadian, U.S., Mexican natural gas pipelines, liquids pipelines, and our power and storage business. As we advance our $37 billion secured capital program, we expect to build on our long track record of growing earnings, cash flow, and dividends per share. We also have $11 billion of projects in advanced stages of development and expect numerous other in-corridor organic growth opportunities like the $400 million Elwood Power and ANR horsepower replacement project that we announced today to emanate from our extensive critical asset footprint. Looking forward, we will remain disciplined Thanks for us, and good morning, everyone.