TC Energy Corp
TSX:TRP
Earnings Call Analysis
Q4-2023 Analysis
TC Energy Corp
In 2023, the company successfully achieved its three priorities: enhancing the value of assets, effective project execution ensuring operational and financial growth, and bolstering balance sheet solidity. This triple-focus yielded an 11% growth in comparable EBITDA compared to the preceding year and marked another year of operational and financial triumphs. Additionally, a strategic decision was made to spin off the Liquids Pipelines business into two independent investment-grade entities, facilitating tailored strategies for each, to optimize shareholder value. The EBITDA growth, coupled with the sale of a noncontrolling interest in the Columbia pipelines yielding $5.3 billion, slashed the company's leverage, setting the stage for sustainable growth and reinforcing the 2024 EBITDA outlook between $11.2 billion and $11.5 billion.
Through cost-conscious execution of projects, including CGL and Southeast Gateway, the company successfully commissioned approximately $5.3 billion worth of assets, on budget. It reduced debt-to-EBITDA ratio by over 0.4x, through the sale of pipelines interest and an incentive payment. This strategic financial discipline helped achieve the target of a lower leverage metric. Ensuring investor confidence, the company has continued its dividend expansion for the 24th consecutive year, signaling a robust value proposition.
The company anticipates a consistent performance in Canada and forecasts growth in the U.S., backed by new assets and projected service launches in 2024. Mexico's EBITDA is expected to rise due to the third-quarter achievements, while the Power and Energy Solutions business is set to improve further with Bruce Power Unit 6's return to service. Heading into 2024, the EBITDA is projected to remain stable and is expected to fluctuate between $11.2 billion and $11.5 billion until 2026. However, the earnings per share might descend, owing to larger controlling interests subsequent to the Columbia deal.
The company is hyper-focused on a secured capital program that stabilizes the 2024 EBITDA forecast. The Board's approval of a 3.2% annual dividend increase—the 24th such consecutive enhancement—attests to the company's commitment to delivering shareholder value. While executing the strategic priorities similar to 2023, which include the spin-off of South Bow and sustaining debt-to-EBITDA leverage goals, the company maintains a fervent commitment to deliver project execution and strengthen financial sovereignty.
You don't have any saved screeners yet
Thank you for standing by. This is the conference operator. Welcome to the TC Energy Fourth Quarter 2023 Financial Results Conference Call. As a reminder all the participants are in listen only mode and the conference is being recorded. [Operator Instructions]. I would now like to turn the conference over to Gavin Wylie, Vice President, Investor Relations. Please go ahead.
Thanks very much, and good morning. I'd like to welcome you to TC Energy's 2023 Fourth Quarter Conference Call. Joining me are Francois Poirier, President and Chief Executive Officer; Joel Hunter, Executive Vice President and Chief Financial Officer; along with other members of our senior leadership team. Francois and Joel will begin today with some comments on our financial results and operational highlights.
A copy of the slide presentation that will accompany their remarks is available on our website under the Investors section. Following their remarks, we'll take questions from the investment community. We ask that you limit yourself to 2 questions. And if you're a member of the media, please contact our media team.
Before Francois begins, I'd like to remind you that today's remarks will include forward-looking statements that are subject to important risks and uncertainties. For more information, please see the reports filed by TC Energy with Canadian securities regulators and with the U.S. Securities and Exchange Commission. Finally, during the presentation, we'll refer to certain non-GAAP measures that may not be comparable to similar measures presented by other entities. These measures are used to provide additional information on TC Energy's operating performance, liquidity and its ability to generate funds to finance its operations. A reconciliation of various GAAP and non-GAAP measures is contained in the appendix of the presentation.
With that, I'll turn the call over to Francois.
Thanks, Gavin, and good morning, everyone. At the beginning of 2023, we set out to deliver on 3 clearly defined priorities that focused on maximizing the value of our assets, project execution and enhancing balance sheet strength, and I'm pleased to report that we delivered on all 3 of those commitments. Our focus on safety and operational excellence resulted in high availability and several utilization records across our systems that contributed to 2023 comparable EBITDA being 11% higher compared to 2022, another record year for operational and financial results. We also announced our intention to spin off our Liquids Pipelines business to create 2 stand-alone investment-grade companies with greater flexibility to implement distinct strategies to unlock their full potential and deliver incremental long-term shareholder value.
Our focus on project execution resulted in placing approximately $5.3 billion of projects into service on budget. And our major projects, including CGL and Southeast Gateway, remained on track or ahead of our 2023 targets. We committed to enhance our balance sheet strength through capital rotation and successfully closed the sale of a noncontrolling interest in our Columbia pipelines with cash proceeds totaling $5.3 billion and that reduced our 2023 debt-to-EBITDA leverage metric by over 0.4x.
A major step towards reaching our 2024 year-end objective of 4.75x debt to EBITDA. And with this positive momentum, building into 2024, we have increased our dividend for the 24th consecutive year and reaffirm 2024 comparable EBITDA outlook to be between $11.2 billion and $11.5 billion.
Now after 5 years of construction and 55 million hours worked, we achieved the monumental milestone of mechanical completion on Coastal GasLink. This was one of the most technically challenging pipelines ever built in Canada, and our team applied project execution and safety excellence to deliver this project ahead of our year-end target.
Following mechanical completion, we completed the required commissioning process safely in 2023, and we are now ready to deliver natural gas to LNG Canada's facility as soon as they are ready to receive it.
Reflecting the team's monumental efforts to achieve these milestones, as the project developer, TC Energy earned a $200 million incentive payment that was settled through a cash distribution earlier this week.
Post construction and reclamation activities will continue throughout 2024 with the project remaining on track with its cost estimate of approximately $14.5 billion. The success of this project is not only important for TC Energy and for our customer, LNG Canada.
It's a nation-building project that will provide Canada's first direct path for sustainably produced Canadian natural gas to reach global LNG markets. In Mexico, we are making meaningful progress on our Southeast Gateway Marine pipeline. We reached a milestone in the fourth quarter when we began offshore pipe installation for the project. We've now completed 100% of the concrete weight coating on all of the offshore pipe and the remainder of the offshore pipe installation will continue throughout this year.
And with all critical permits for construction obtained, the onshore construction at all landfall sites continues to progress on plan.
Importantly, the project continues to track schedule and expected cost of USD 4.5 billion as we continue to see benefits from sanctioning this project under our enhanced capital allocation governance process that included a Class III estimate prior to our final investment decision. Now while our utility-like assets do not carry any material volumetric or commodity price risk, continued high utilization throughout the fourth quarter continue to reflect volume growth and the incremental demand for our services that underpins our future investments. Within our integrated natural gas business, total NGTL system deliveries in Canada averaged 14.5 Bcf a day, while our investment base grew by 9% year-over-year.
In the U.S., various pipelines achieved record throughput volumes, including our GTN system, which achieved an all-time delivery record of 3.1 Bcf in November. And our Mexico Pipeline's daily throughput was also higher, averaging 2.7 Bcf per day, which is up 30% compared with the fourth quarter of 2022 levels.
In our Power and Energy Solutions business, our focus on operational excellence, centers around our assets being available to deliver power when it was needed most. And our Alberta cogen power fleet achieved 99% availability in the fourth quarter, and Bruce Power also had strong performance and averaged a 92% availability throughout 2023, which is well above our historical averages.
Bruce Power's Unit 6 returned to commercial operations in 2023 following its major component replacement outage ahead of schedule and within budget.
Bruce also submitted its final basis of estimate for the Unit 4 MCR with the ISO in the fourth quarter and we have now received the ISOs approval last week. Unit 4 will be the third of 6 units in the Bruce MCR program, where we are extending its asset life for the next 40 years. This exceptional, emissionless asset produces 30% of the electricity in Ontario.
On South Bow, Bevin and team continue to make progress on the proposed spin-off of our Liquids Pipelines business into a stand-alone investment-grade entity. Van Dafoe has been named as incoming Senior VP and CFO. With over 30 years of experience in the energy industry, including being the CFO of a public company for 8 years, Van will be instrumental in leading South Bow's financial and strategic affairs.
Additionally, Lori Muratta was named as incoming Senior VP and General Counsel. Lori will oversee South Bow's legal, compliance and regulatory activities, bringing over 20 years of experience in the energy industry and 30 years overall practicing law. For next steps, we expect our proxy circular will be filed in the first half of this year, and we remain on track to advance a shareholder vote by midyear. It is expected that we will hold our AGM concurrently with a shareholder vote on the spinoff transaction. And now I'll turn the call over to Joel.
Thanks, Francois. Strong operational performance during the fourth quarter delivered 16% year-over-year growth in comparable EBITDA. The primary driver of this growth relates to increased comparable EBITDA from our Canadian Natural Gas Pipelines business largely related to the recognition of a $200 million incentive payment upon meeting certain project milestones on Coastal GasLink. This amount was settled through a cash distribution on February 12, 2024, and was recognized as income from equity investments in our consolidated income statement for the year ended December 31, 2023. I'll note that even when excluding the $200 million incentive payment, we delivered approximately 8% growth in comparable EBITDA versus fourth quarter 2022.
As Francois mentioned, our base business performed exceptionally well during the fourth quarter and throughout 2023, our team safely placed approximately $5.3 billion of projects into service on budget. We also delivered a 24% increase in quarterly comparable earnings relative to last year. This largely resulted from increased comparable EBITDA partially offset by higher interest expense and higher net income attributable to noncontrolling interests following the Columbia sale in 2023.
For 2024, we expect comparable EBITDA to be between $11.2 billion to $11.5 billion, consistent with what we announced at our November 2023 Investor Day. This growth is primarily driven by an increase in the NGTL system, the full year impact of projects placed into service in 2023 and approximately $7 billion of new projects expected to be placed in service this year.
Comparable earnings per common share is expected to be lower than 2023, largely due to higher net income attributable to noncontrolling interests related to the Columbia sale. Total net capital expenditures for this year are expected to be approximately $8 billion to $8.5 billion.
I'll now discuss a few highlights from our 2024 outlook. Within our integrated natural gas pipelines business comparable EBITDA is expected to be consistent in Canada due to the continued growth of our NGTL system, partially offset by the absence of the Coastal GasLink incentive payment that was recognized this year.
Higher in the U.S., largely due to assets placed in service in 2023 and projects we expect to place into service in 2024, including Gillis Access and GTN XPress and higher in Mexico with growth that underpinned by a full year of incremental revenue from the BDR lateral that was placed into service in Q3 2023.
With Bruce Power Unit 6 having returned to service comparable EBITDA from our Power and Energy Solutions business is also expected to increase relative to 2023. Without taking into account impacts related to the proposed spin-off, comparable EBITDA from the Liquids Pipelines business is expected to be consistent with 2023.
Consistent with what we showed at Investor Day and excluding contributions from the Liquids Pipelines business, shown on the left-hand side of this slide, Comparable EBITDA out to 2026 is expected to be in the range of $11.2 billion to $11.5 billion. Growth out to 2026 is underpinned by high-quality assets that are expected to be placed into service further supported by the highly rate-regulated and long-term contracted nature of our business.
I'll note that recent announcements related to our Heartland project and the Bruce Unit 4 MCR, were included in our net capital expenditures outlook shown at Investor Day.
These projects do not change our commitment to limiting net capital spending to $6 billion to $7 billion with a bias to the lower end in 2025 and beyond. Looking to the right-hand side of this slide, South Bow's long-term outlook also remains consistent with what Bevin showed at Investor Day. The South Bow team expects to see comparable EBITDA growth averaging 2% to 3% out to 2026 delivering low-risk, double-digit shareholder returns. Bevin and his team have the intention to have the majority, if not all, of the capital structure in place prior to the spin-off, subject to a successful shareholder vote.
Anticipated proceeds from the senior and subordinated debt issued at South Bow will be used to repay approximately $8 billion of TC Energy debt and help meet future funding requirements.
Underpinned by our strong performance last year, TC Energy's Board of Directors has declared a first quarter 2024 dividend of $0.96 per common share which is equivalent to $3.84 per share on an annualized basis, representing a 3.2% year-over-year increase. This is the 24th consecutive year the Board has raised the dividend which is foundational to the enduring value proposition of TC Energy. Thank you, and I'll pass the call back to Francois.
Thanks, Joel. We had a great success in 2023, focusing on executing a clearly defined set of priorities that directly align to our strategic vision and value proposition. So for 2024, there should be no surprise that our strategic priorities will look very similar to 2023. First, we'll continue to maximize the value of our assets through safety and operational excellence and by successfully executing the spin-off of South Bow. Second, we will remain focused on project execution delivering on time and on budget, including Bruce Power's MCR-3 and advancing Southeast Gateways mechanical completion by the end of 2024. And third, we will continue our path to achieving and sustaining our 4.75 debt-to-EBITDA upper limit by the end of 2024 by advancing our divestiture program and continuing to streamline our business through our efficiency efforts.
By executing on our high-quality secured capital program, we expect to deliver 2024 comparable EBITDA of $11.2 billion to $11.5 billion and incremental long-term value for our shareholders. With that, I'll turn it over to the operator for questions.
[Operator Instructions]. The first question comes from Rob Hope of Scotiabank.
Questions on Mexico. So [indiscernible] we had over half the spend out the door already. As we take a look into 2024, what key milestones should we be watching for? What do you view as the highest risk factors? And how is spend -- have you seen an increase in any contingencies there?
Rob, this is Stan. As Francois pointed out, we have no change in our cost or schedule, and we're continuing to track to the $4.5 billion cost estimate in summer 2025 in service date. And we spent about $2.5 billion or so to date. We'll spend another $1.5 billion this year and about $500 million or $600 million or closing things out in 2025.
Just a couple of highlights. As of earlier this week, we've laid about 225 kilometers, which is about 34% of our subsea pipeline in the Gulf of Mexico. The work that we're doing onshore is progressing nicely at all three of our landfalls. As a matter of fact, at [ Potecio ], we actually completed our drill last week on time and on schedule. The micro tunnel that we're building in [indiscernible] should be completed sometime by the end of this month.
So going forward, when I think about next milestones, we should have all of the deepwater portion of the subsea pipeline completed by early summer. The shallow water tie-in work should be completed by the end of the summer. And then the compressor work will be completed this fall so that we could then turn our attentions to commissioning activities and putting the project in service for summer 2025. So no changes to capital costs, no changes to contingencies at this point in time, but the project is progressing nicely as planned.
Excellent. And then just keeping on Mexico, is there any updated thinking on how to get to the 10% Mexico EBITDA limit? And is this more of a near-term or a longer-term target? Or where can we see some additional clarity there?
Rob, it's Francois. I'll take that one. As we've said before, we remain committed to reducing our exposure as a percentage of consolidated EBITDA. That 10% threshold was prior to the spin or post spin, if we're successful, probably more in the 12% range. We are exploring a variety of different avenues to begin lowering our exposure. We are prepared to transact in 2024 but we're not going to give up shareholder value to do that. We're progressing nicely on construction on Southeast Gateway. So we're going to take our time and do this in an orderly fashion. And look over the next 2 or 3 years to be reducing to that 10% to 12% level.
The next question comes from Theresa Chen of Barclays.
Maybe hitting on that last point and you put it into the broader asset divestiture program. As you seek to delever towards your target by the end of this year, can you provide any updates on the progress of additional asset sales this year and just the steps from here transaction timing, size and such. Anything we can think about there?
Theresa, we have a number of processes in market right now. So I'm going to maintain deal discipline to every extent possible, but still try and help you here. As we've mentioned in the past, we're not looking to do a single transaction to achieve the $3 billion like we did last year with the very sizable GIP transaction think of us doing anywhere from, let's say, 2 to 4 transactions to get to that $3 billion number.
Those smaller transaction sizes tend to widen the buyer universe because more people can write those check sizes. So we have seen good interest in the different processes that we have underway. These processes tend to have their natural pace and cadence. We're hopeful that we'll be able to make at least one announcement in the first half of the year. But again, we're going to be disciplined and make sure that we're preserving value for our shareholders.
That is helpful. And then turning to South Bow and the anticipated growth post spin in order to aid in its own deleveraging. When we think about the potential upside opportunity in Marketlink going forward, just given the many moving pieces in that [ mid content ] or Permian to Gulf Coast part of the world. So you have no certain competitors expanding capacity, others having contract roll off near term, others converting crude back to NGL service and vice versa. How should we think about market length potential expansion earnings with this background?
Theresa, this is Bevin. You basically just acknowledge the premise for the spin. There's a tremendous opportunity for South Bow to address the tremendous demand that we've been seeing in the Gulf Coast. We had over 150,000 barrels additional demand on our Marketlink system here in the last half of 2023. And that allowed us to underpin over 200,000 barrels a day of incremental contracts on that Marketlink system here in the balance of the year. So we accelerated a bit of the growth that we were anticipating in '24 into '23. A lot of that came from -- I've shared previously the [ fingers and toe ] strategy. So we added the Port Neches Link last year on time and on budget, and that began seeing consistent flows providing that additional outlet for those customers on Marketlink.
In addition, we brought on the capability to hit Tidewater. So as you mentioned, many are providing different access to Tidewater. We have 6 terminals that can now provide that capability for our customers. So our South Bow strategy is to leverage that pre-capitalized system on the Gulf Coast, but also we're seeing similar opportunities in Alberta where we have underutilized or under -- we've already capitalized our Grand Rapids system, for example. And bringing on additional volumes onto that system is very accretive. And so that underpins our ability to have our own capital structure to attend to those opportunities is a really strong opportunity for our shareholders.
The next question comes from Praneeth Satish of Wells Fargo.
Maybe just back to the asset sales for a second. I'm just wondering how the interest rate environment could influence the timing of asset sales over the balance of the year. I mean, I know you mentioned you expect to potentially transact at least one deal in the first half of this year. But I think the general consensus is that interest rates will fall over the balance of the year. So does that favor maybe weighting towards the latter half of the year to announce more asset sales. Just curious for your thoughts on that, whether that makes a difference in how you perceive the cadence of sales.
Thanks, Praneeth, interesting question. As I said in the Theresa's prior question, these transactions tend to have their own cadence and momentum is a very powerful thing. No question that in the current environment, certainly, when you're thinking about financial buyers that the underlying interest rate environment does have an impact on valuation. We're being really disciplined here. We're not in a rush. The agencies have given us the feedback that we do have until the end of 2024 to get to our below the upper limit of 4.75 debt to EBITDA, and we're going to take our time. And it's not lost on us that as monetary policy starts to ease in the second half of the year, we may benefit from that. But having said that, our first priority is to achieve a minimum of $3 billion of divestitures and to do that by the end of the year. And while we're not going to undertake prior sales, if we see reasonable value today, we will transact on it.
Got it. And then it looks like gas deliveries from power -- gas deliveries to power plants set another record. Just wondering if you could talk about how much of this uptick is being driven by demand from data centers as that seems to be picking up quite a bit here. And whether you're seeing any data centers reach out to you directly for gas supply to maybe power cogen units and go around the grid.
This is Stan. I can take that one. Data centers, as you know, tend to be high demand consumers that need a constant and reliable energy source such as provided by natural gas, and we are looking at several options across our footprint. That includes some of our smaller pipes out West, opportunities on the Columbia system in Virginia. And maybe most recently on ANR, where the assets that we have in Mount Pleasant, Wisconsin are going to indirectly serve Microsoft's new data center via a local distribution company that will be in between us and them. So Yes, this is a growing demand source for us and something that we are well aware of and expect to take advantage of in the future.
The next question comes from Jeremy Tonet of JPMorgan.
Just wanted to kind of expand on the LNG outlook, I guess, as well, with the moratorium in the U.S., just wondering your thoughts, I guess, on positioning for West Coast Canada there, future growth and possible expansion on those facilities, it seems like with the cost put into those facilities overall, economies of scale would argue for further expansion. Just wondering how you see North American LNG export outlook going forward and the impact on [indiscernible].
I'll start at a high level there, Jeremy, and then I'll ask Stan to provide a little bit more detail. Look, we're the only gas transmission company that has a dominant footprint in all three countries, and we have access to all shores of North America. So LNG demand growth is as our customer is going to be a big source of our growth going forward. You're right, brownfield economics typically beat greenfield economics all day long. So where we are already serving LNG export, we see opportunities for us to grow throughput. And Stan, over to you for a little bit more detail.
Jeremy, just to maybe double click on that. From a macro perspective, we're exporting around 14 Bcf of LNG from the U.S. today. We see that growing to somewhere north of 30 Bcf by the end of the decade. Across all of North America with maybe 3 to 4 Bcf coming from Canada and 2 to 3 Bcf coming from Mexico. But you also referenced the moratorium or the stay and maybe just a couple of points on it. First of all, the stay impacts about 20 or so projects that are currently in the approval queue, but it does not impact projects that are already approved. So projects like our Gillis project, which is slated for in-service later this year, and our East Lateral Xpress project, which is slated for in-service in 2025 are not going to be impacted.
But today, our assets transport about 25% of the delivered LNG terminals, and those two projects are just going to further enhance that. A bigger picture, though, what I would note is it really is the diversity of our pipeline network across North America, which is one of our biggest strengths. And we're going to continue to see strong demand for our assets across the LDC, power generation and LNG export sector and should a pause in LNG exports in the U.S. be extended for a significant period of time. The geographical diversity that our pipelines afford us may well see opportunities both in Mexico and Canada. And as a matter of fact, we heard the Canadian Energy Minister, Wilkinson, expressed that exact sentiment just a few weeks ago.
Got it. That's very helpful. And Stan, maybe kind of expanding on the U.S. gas pipe network outlook. Just wondering, as far as future growth is concerned, where do you see, I guess, more of the growth coming from? Is it just more of these kind of bolt-ons? Or do you see the potential for anything like bigger brownfield expansions or even greenfield expansions here just given increased, [ peaking ] need for natural gas across the U.S.
Again, given our best-in-class footprint, we're going to leverage our in-corridor expansions to the greatest to be possible. So I don't see us doing a lot of greenfield expansions. Particularly it makes it more challenging on the permitting and the construction front. But I continue to point out to you the growth in the power generation sector and our Heartland project that we just announced today is another example of that, where coal fire power generation is retiring, demand for energy continues to grow, and our assets are uniquely positioned to fill that gap. So growth in power generation, both in LNG exports longer term, as well as increased connectivity with our LDC customers, I think, are going to be the main drivers for our U.S. pipes.
The next question comes from Linda Ezergailis of TD Cowen.
Just wondering if you can give us any update on how you're progressing on your productivity and cost effectiveness initiatives in your natural gas business. Where are you at in terms of identifying opportunities and implementing them.
Linda, this is Stan. I think you're referring to what we call our Project Focus initiative and you may recall that, that is all about creating value by fundamentally changing the way we do our work around safety, operational excellence and cost and capital discipline. Last year, we announced a target run rate of about $750 million of efficiencies that would be realized by the end of 2025. And you can think of that as being made up of things like capital reductions, expense reductions and revenue enhancements. At the end of last year, we actually captured and implemented run rate efficiencies of about $230 million. We expect to generate another $270 million of efficiencies by the end of this year. So we'll have a cumulative amount of around $500 million. And the balance of the $750 million will be generated in 2025. So I would say things are progressing nicely and according to plan.
And maybe just as a bigger picture follow-up. Realizing that you've got a lot of priorities. I'm just wondering if you could also give us a regulatory update in terms of how you're thinking about any sort of significant natural gas pipeline filings, any sort of settlements and with the backdrop of the Chevron Doctrine being challenged as well, maybe influencing how you approach your regulatory relationships. I mean it's been pretty foundational for the agencies being able to interpret any sort of ambiguous statutes in the U.S. and that the courts would defer to that. And if that gets discarded or clawed back, just any sort of early thoughts on how that might shift your approach to managing your regulatory relationships and strategies.
Linda, I'll start and pass it over to Stan for a bit more detail. Just sort of bigger picture pulling up to 40,000 feet. We've had very good success getting permits for our projects. As a matter of fact, we recently received FERC approval for one of our projects in Virginia, about 4 months early. So it's going to allow us to actually accelerate a little bit of our capital spend, which will generate incremental EBITDA earlier than we had expected, and that's going to improve the IRR of the project. As a general matter, as you know, we're spending more capital on maintenance because the utilization of our assets is so high. So we are, as a strategy in order to minimize regulatory lag in the United States going to be continuing to file rate cases more frequently, wherever we are allowed to do that. And of course, we are going to be proceeding in that regard on Columbia in 2025. With respect to the Chevron doctrine and some of the other details, I'll kick it over to Stan.
Yes. Linda, I would maybe preface my remarks by saying that given that we are making as an industry and a company, long-term, large dollar capital investments in [indiscernible] energy infrastructure predictability and stability in the regulatory, judicial and legislative process is really critical for us. I really don't see absent there being something unforeseen. A drastic changes in terms of how we file and prosecute rate cases, for example, due to the Chevron doctrine. And that you may recall that in the U.S., most of our rate cases tend to be settled with our customers rather than litigated nor do I see there being any significant changes with respect to how we operate the pipe. Given that this could lead to more of the tedious outcomes, we may have to build in longer lead times for originating and constructing our projects. But at the end of the day, we need to wait and see what if anything comes out of the Supreme Court decision, and then we'll respond to those changes accordingly.
The next question comes from Ben Pham of BMO.
Maybe to go back on the asset sale program. You mentioned more positive backdrop year-to-date versus last year. I'm wondering what's your willingness then to maybe perhaps execute on more than $3 billion this year and just push the leverage down even more.
Ben, we have an openness to that but it's going to be on the basis of compelling valuations in our various processes, given that we want to make sure that we achieve our $3 billion target for 2024. We've got many conversations going on, not only is there competition within processes, but there's competition between processes. So to the extent we could see some compelling valuations, we would be open to considering exceeding the $3 billion target.
Okay. Got it. And then maybe a question on liquids performance this year and going forward, just given the better result, I guess, for [indiscernible] or so, doesn't that warrant or just more directionally, maybe a bit more upside ties to your middle decade EBITDA guidance for the liquid segment?
So Ben, this is Bevin. Thanks for the question. As I mentioned earlier, we were able to accelerate a little bit of the growth that we're anticipating in '24 back into '23. I do want to temper our outlook for Q1 of this year. As you know, we have a marketing affiliate that optimizes the utilization of our Gulf Coast system primarily. And we have some basically accounting differences between physical and financial trades that we think we'll have a bit of a headwind here in Q1. So I'd just temper our results here in the near term. We want to reaffirm our outlook of that 2% to 3% long-term growth that is we believe we'll be able to underwrite that growth consistently, and that's what we want to be as a very predictable deliver of EBITDA growth for our shareholders.
The next question comes from Brian Reynolds of UBS.
Maybe to follow-up on some of the South Bow questions as it relates to the future debt issuance used to repay TC just given some of the outperformance we've seen [ center ] spend from TC, but also liquids and now you have the $200 million CGL payment, which it sounds like that wasn't originally in the guide because you had made some performance metrics. Just kind of curious if we could see any evolution, whether it's a couple of hundred million here or anything more material as it relates to that ultimate debt issuance to TC from South Bow.
Yes. So Brian, this is Bevin again. So first off, we are going to come out with an investment-grade rating post the successful shareholder vote will be going out to the market, which, fortunately, we've seen some improvement in the debt capital markets here over since the announcement of the spin back in July. We'll look to set up that capital structure that allows us to underwrite the future performance. And if we're able to have -- we have to balance the needs of both TC and South Bow as we divide the dividend and the debt going forward, and we'll optimize that for our shareholders. But right now, I would say it's more constructive than what we would have thought last July. So that's a good thing for the outlook of both entities.
Brian, it's Joel here. I'll just add to that, too. And what we showed you at Investor Day back in November is that just given the current rate environment, the proceeds that we'll receive from South Bow where it's around $8 billion that we have the ability to buy back some of our debt to discount. So we expect to take out more than what the proceeds are from South Bow given that our debt would be trading at a discount.
Sounds like more to come. On Northern Border switching to the gas side, Natgas constraints seem to get into a pretty tough level at this point with expansion really need it soon. So kind of just curious if you can give us an update on Bison Xpress. And ultimately, how does that flow through to it's potential cost implications as it relates to your $6 billion to $7 billion outlook. You guys are very committed to that, kind of how does the basins need for expansion intertwined with your commitment to that $6 billion to $7 billion outlook.
Yes. I would just say that our Bison Xpress project is progressing as planned. We have every expectation of bringing that in service on time line budget. And as you pointed out, there is a need for additional [ egress ] capacity out of the basin. These dollars are included in our $6 billion capital plan going forward and the expectation on executing on that accordingly.
The next question comes from Robert Kwan of RBC Capital Markets.
On the back of the sanctioning of Heartland and as it relates just to the placeholder CapEx in your plan through 2026, can you just talk about what segments and what types of projects would be the largest contributors, especially the 2026 bucket. And with that comment, just specifically building on stand [ dancer ], if the pause on the non-FDA export permits is made more permanent? How much of that grade bucket is at risk?
It's Francois. I'll take that one, Robert. When you think about our capital stack, not just in 2026, but as a general matter, think of about $2 billion a year of recoverable maintenance capital across our 3 pipeline systems would be one contributor. Secondly, $800 million or $900 million a year on average of Bruce Power capital for the major component replacement program as well as the Project 2030 efficiencies on the non-reactor side of the plant. And then predominantly growth capital across our 3 natural gas footprints. When you look at our projects and the impact of the pause on the capital stack. As Stan mentioned, one of our projects, Gillis could be impacted by any meaningful delays in its sanctioning. But these are small dollars, low hundreds of millions.
And so as we mentioned at our Investor Day in November, our capital is pretty much spoken for through '26 and now with the Heartland project '27 we haven't increased the aggregate limits. In November, we included some of the unsanctioned capital in our disclosures, both the MCR 4 at Bruce and Heartland were in November in the unsanctioned or as yet to be sanctioned growth. And we remain steadfast in our focus on maintaining our capital spend, not just within the $6 billion to $7 billion, but frankly, to the lower end of that range from a value creation standpoint, the prize there is if we execute on plan for roughly $6 billion a year, and it might be plus or minus $100 million or $200 million in any given year, then we have excess capital to either accelerate deleveraging or to ultimately proceed with share buybacks.
We're building in that optionality on an annual basis which is something that we have not done in the past. So from my perspective, if for some reason, a project -- an individual project is deferred and we end up at $5.5 billion instead of $6 billion, for example, we still have good uses for that capital in accelerating our deleveraging and ultimately doing share buybacks because those are value accretive to our shareholders.
And if I can just finish with the interplay between the 4.75x target and the comments on executing the asset sale program in a manner that is positive to shareholder value or put differently, that you're not going to fire sale assets. If the markets work against you, how are you thinking about that target, particularly as well into 2025, which is kind of just a bridge year at roughly a Southeast Gateway and really the goal being 2026. So how do you, like I said, think about that target in 2025 as well.
Yes. So good question, Robert. Based on conversations we're having and how our processes are going to date, we're very confident on achieving the $3 billion number in 2024, and we are steadfast in achieving that amount of deleveraging. It's a high priority for us to get to below 4.75 upper limit by the end of 2024. With respect to 2025, we would need either incremental divestitures or incremental EBITDA above $400 million of incremental EBITDA in order to stay below that 4.75 level. And to the extent as was asked previously, we have an opportunity to perhaps upsize the program in '24, we'll consider that. We also feel that we can get to the $3 billion number without transacting in Mexico in 2024. But as we said, we're focused on reducing our exposure in Mexico over the next 2 or 3 years to get to that 10% to 12% of consolidated EBITDA level. So you could look to us pulling on some of those levers, including how successful our efficiency program is around revenue increases and cost reductions to fill any gaps that we see in 2025 and beyond.
The next question comes from Robert Catellier of CIBC Capital Markets.
Congratulations on all the accomplishments in 2023. I had a quick follow-up on the liquid side. I wondered if you could give an update on where you are with Keystone in returning that asset to its previous level of pressure?
Robert, this is Bevin. So we've had, as I mentioned earlier, outstanding performance operationally here year-over-year, we continue to increase our system operating factor. We achieved record levels here at the end of the year and early this year. That is only as a result of our prime focus on operating our system very safely, and that included doing all the integrity work last year. We've done full in-line inspections on over 80% of our system to date. That will be all complete prior to any spin transaction. In doing those in-line inspections as well as all of the physical digs over 60 digs this past year to do confirmation of anything that we do see in areas of potential concern, we have found no potential incident or issues with the integrity of our systems.
So our confidence increased significantly here since undertaking that work. We're working very closely with both our regulators, both [ FIMSA ] and the United States as well as the CER we've managed to address all the issues so far that they have raised. But their determination is up to them as to returning the system to its original operating pressure. That said, because of our operational performance, we were able to deliver all of our contract capacity, and we've been able to move spot batches as well. So our operational excellence is allowing us to continue to deliver strong performance.
Okay. Thanks for that detailed answer, Bevin. I just wanted to move on to the asset development and the regulatory side. Specifically on cost sharing on development costs before projects are permitted. I wondered if you've -- what your approach there is to cost sharing might be in light of the high utilization of assets across the industry and just the tough permitting environment. And maybe specifically, you can address what type of progress you're making with government funding for predevelopment on key projects in Ontario, such as the Ontario pump storage.
Thanks, Robert. I'll start with a very high level. I'll ask Stan to provide some context on cost sharing in the U.S., and then Annesley can touch on our Power and Energy Solutions projects in Ontario. And the only comment I wanted to make before passing it over is that just to remind you that in Canada, we have mechanisms to have reimbursement of development costs or inclusion of development costs as spent in our tariff structure and so the notion of cost sharing for development is really more of a U.S. question rather than one in Canada. So over to you, Stan and then over to Annesley.
Robert, again, I would just reiterate, first of all, that the progress in all of our projects is going really, really well. This year, we're on track to put 3 projects in service. We put our Virginia electrification project in service on time and on budget. A couple of weeks ago, later this summer, we'll put our Gillis project into service. And then assuming we get timely and favorable recurring order on GTA and we'll put the balance of that project in service by the end of the year.
With respect to things like risk-sharing mechanisms, we've been doing that for a very, very long time in the U.S. As a matter of fact, many, if not almost all of our projects have some sort of a cost sharing that's usually around a 50-50 split between us and our customers, should we have cost overruns.
We also have other protections where in certain instances, should a customer not reach FID, they will reimburse us for 100% of our development costs. That's something that we've been doing for a long time, just as part of our DNA. The regulatory slides with respect to building projects has gotten a little bit more complex. But I think we have the skills and the talent to navigate that. And I see us continuing to originate and build new projects within this 5 to 7x build multiple and within our $6 billion go-forward annual capital spend.
Robert, it's Annesley. In the Power and Energy Solutions business, our near-term focus is really on nuclear and pumped hydro. And a big part of the reason for that is the policy support that we see for both of those 2 sectors, particularly in Ontario. And so we are in discussions with the province on cost recovery agreements for those projects. As we progress them, we will remain very disciplined with respect to our capital that we would put at risk. And so we do anticipate advancing those agreements in the near term, both with respect to the work that we have begun on Bruce Power, a nuclear new build [ Bruce C ] at that site as well as our Ontario pump storage project.
The next question comes from Patrick Kenny of National Bank Financial.
Just on CGL and these potential cost recoveries from contractors, I'm not sure if you can comment on or confirm if all claims have been filed with the courts at this point, what the total amount of all claims might look like? And also if you've assumed any successful litigation or settlements within your 4.75 leverage target by year-end or if we should be thinking about these potential recoveries being 2025 at the earliest?
Yes, sure. It's Greg Grant here. I'll go first, and then Joel can talk to the 4.75. But First, just given, you gave me the mic, I'm going to thank the team again. I think this is a monumental effort that the team was able to achieve here on CGL. It took everybody operations, commercial, project execution, stakeholder team effort to achieve the readiness by the end of the year. So that $200 million was quite important to the team. As you think about moving forward into 2024, safe execution is the mandate and what we're going to continue to focus on as we work through some of the reclamation work. We're not really going to get into talking about individual claims or what that looks like.
I think what I would say is we will vigorously defend the claims, but also in pursuing cost recoveries, which we do expect net recoveries and just to highlight, we remain on track to the $14.5 billion.
And Pat, it's Joel here. Just with respect to the net recoveries that Greg has highlighted, we're not going to give you a dollar amount on that, but we do factor that into our funding plan here as it relates to this year.
Okay. Great. And then just on NGTL. I'm wondering if you might have an update on where you're at with rolling over the 5-year revenue requirement settlement. And I know you can't comment too much either on what a potential minority stake in NGTL might look like. But just curious if having the new revenue settlement in place represents any sort of precursor to executing on any type of ownership transaction with NGTL?
Sure. Greg here. I'll talk about the settlement. Just as a reminder, settlements in place until the end of 2024 discussions are going well with customers. Can't talked too much around the actual settlement itself. But you've seen the system and the health of the basin here recently, we've hit all-time highs on NGTL here in January, continuing to seeing significant usage in decade level highs heading out of mainline. So we're quite happy with the health of the basin. I think the conversations are going well with the customers. We'll be looking probably not until midyear before we start to get closer to settlement, but we expect a settlement with customers here later this year where we can comment more.
And with respect to the impact of the settlement on the timing of any potential minority interest sale on NGTL, Pat, we obviously have -- it's public information that our settlement expires at the end of the year that we are working towards a renewal of that settlement with our customers and we have, in our own minds of view as to what a fair outcome is, and we will obviously factor that into our view of fairness of any transaction for a minority interest in NGTL.
The next question comes from Olivia [ Halpert ] of Goldman Sachs.
Wondering if we could just start on Bruce. Availability continues to be strong, though I acknowledge the maintenance heavy fourth quarter. Is there any planned maintenance you can point us to for 2024 and more broadly following the successful and accelerated MCR on Unit 6. Are there any lessons learned that you can apply to future MCRs and how much conservatism would you say is baked into the MCR time lines?
Olivia, it's Annesley. I'll take that question. So we definitely did see strong performance from Bruce Power last year across both the operating units as well as with the performance of Unit 6 MCR program. Heading into 2024, we can expect availability to be similar to what we've seen in 2023.
So we expect continued strong performance. There will be regular planned outages as we also saw in 2023. But that is factored into that guidance. From a MCR perspective, we certainly have taken many lessons learned from the Unit 6 MCR project and have applied them to the planning and the execution of the future units. So we're currently in execution on Unit 3, and we're seeing some of the benefits of those lessons learned already on Unit 4.
It will be a similar story. Beyond just the lessons at Bruce Power, we have also certainly engaged with industry and have continued to apply lessons learned from outside of Bruce Power as well. Maybe the last thing I would highlight with respect to Bruce Power performance for 2024. We do expect our annual price increase to come in April, and so we'll share more at that point in time.
Okay. And then I guess, just more broadly on the 2024 EBITDA guidance, what is the largest driver of potential variability and maybe you could sensitize what could drive performance to the high end versus the low end of the target growth range.
Thanks for that question, Olivia. We don't take a meaningful amount of commodity price or volumetric risk. So essentially, the drivers of performance for us are operational excellence through strong availability of our assets and bringing in our projects on time and on budget. So if we perform according to plan, we will fall within that range. And to the extent we find more efficiencies or increased availability in operations, you could see us move to the upper end or as you saw in 2023 above the upper end of the range of our guidance. And then the other factor, of course, is on delivering on our projects on time.
Ladies and gentlemen, this concludes the question-and-answer session. If there are any further questions, please contact Investor Relations at TC Energy. I will now turn the call over to Gavin Wylie. Please go ahead, Mr. Wylie.
Yes. Thank you, and thanks, everyone, for participating this morning. As noted, if you have any additional questions we weren't able to get through the entirety of the questions later today. Please contact the Investor Relations team. We're always happy to help. We very much appreciate your interest here in TC Energy and look forward to our next update. So thank you, and have a great day.
This brings to a close today's conference call. You may disconnect your lines. Thank you for participating, and have a pleasant day.