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TC Energy Will Divide Into Two Separate Entities


Calgary-based pipeline company TC Energy Corp. has unveiled its plans for a major transformation. The company will divide into two separate entities through the spin-off of its crude oil pipelines business.

The announcement, considered “transformational,” was made after the markets closed on Thursday, just one day before a scheduled conference call to discuss the company’s second-quarter earnings. TC Energy intends to complete the transaction on a tax-free basis, resulting in the creation of two publicly traded companies.

Following the split, TC Energy will reposition itself as a utility company, focusing on natural gas infrastructure, nuclear energy, pumped hydro energy storage, and exploring new low-carbon energy opportunities. The newly established liquids pipeline business will be headquartered in Calgary, with an additional office in Houston, Texas. This branch will concentrate on maximizing the value of TC Energy’s existing 4,900-kilometer crude oil pipelines, including the crucial Keystone pipeline system responsible for transporting oil from Alberta to refining markets in the U.S. Midwest and Gulf Coast.

TC Energy’s board of directors has already approved the plan, which resulted from a two-year strategic review. The company believes that separating its diverse lines of business will enable faster growth. By creating a pure-play natural gas and low-carbon business, TC Energy aims to attract new investors while still maintaining its attractiveness to existing shareholders interested in the crude oil pipeline business.

Under the proposed transaction, current TC Energy shareholders will retain their ownership in the company’s common shares and receive a pro-rata allocation of common shares in the new liquids pipelines company. The exact number of common shares to be distributed to shareholders in the new entity will be determined before the split’s completion. The transaction is expected to be tax-free for both Canadian and U.S. shareholders, but achieving this status will require favorable rulings from the respective tax authorities, a process that might take some time. Consequently, a shareholder vote on the transaction is scheduled for mid-2024, and the entire process is expected to be finalized by the end of that year.

TC Energy has been under scrutiny from analysts and credit rating services due to its significant debt load and cost overruns on the Coastal GasLink project in British Columbia. To address these concerns and pave the way for the growth of the two newly separated companies, TC Energy plans to sell off a 40% stake in its Columbia Gas Transmission and Columbia Gulf Transmission systems to Global Infrastructure Partners for $5.2 billion. Additionally, the company aims to achieve an extra $3 billion in divestitures by the end of 2024, with the funds earmarked for debt reduction.

Despite the restructuring, TC Energy’s current President and CEO, Francois Poirier, will remain in his position, while Bevin Wirzba, the current Executive Vice President and Group Executive for natural gas and liquids pipelines, will become the CEO of the new liquids pipelines company. Poirier believes that these changes will unlock tremendous value, creating two premium energy infrastructure companies.

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