Canada-based TC Energy (TRP) will focus on its natural gas and energy business while a new spinoff— South Bow Corp.— will take over one of the largest crude pipelines in North America, the Keystone. The separation also shifts billions of dollars of debt from TC Energy’s balance sheet to South Bow.

On June 4, TC Energy shareholders approved the move following a 2-year strategic review, according to a statement published on the company’s website.

Under the terms of the spin-off, existing shareholders will receive one TRP share and 0.2 shares of South Bow.

The firm describes South Bow as a low-risk liquids transportation and storage network. Cash flows are about 88% contracted with an 8-year average contract length, according to Jefferies Equity Research, which rated the move as a slight positive. The company plans to deliver about 2% to 3% compound annual growth.

South Bow’s primary asset, the Keystone pipeline, can ship up to 622,000 bbl/d from Canada into the U.S. One of the line’s major branches heads into refineries in Illinois, while the primary branch heads towards Cushing, Oklahoma, and then to Southeast Texas.

Bevin Wirzba, TC Energy’s group president for liquids pipelines and Coastal GasLink, is slated to become CEO of the spinoff business.

To support South Bow’s growth outlook, the company plans to complete the $183 million Blackrod Connection project in Alberta. The connect consists of a 16-mile crude oil pipeline along with a natural gas lateral line, connecting International Petroleum’s Blackrod Project to the Grand Rapids Pipeline. 

TC Energy expects South Bow to obtain an investment-grade credit rating, allowing it to respond to shifts in the market, according to the company’s statement. However, South Bow will inherit about $5.75 billion in TC Energy debt through the company's creation, executives said at TC Energy’s first-quarter earnings call in early May.

The transaction is expected to be completed by the end of 2024.

TC Energy is continuing a $2.19 billion divestiture program to provide more financial flexibility, the company said.

In addition to its North American natural gas pipeline, TC Energy also holds interests in power generation through gas, nuclear and wind facilities.

According to the company's website, the firm will remain focused on a “balance of income and growth that delivers strong shareholder returns.”

The company anticipates $5.12 billion in assets coming into service during 2024, according to a June 4 shareholder presentation. 

“As the world renews its focus on energy security, our liquids pipelines business has experienced increased customer demand, presenting immediate opportunities that require more financial flexibility to maintain its notable competitive advantages,” TC Energy said on its website.

Comments