(Calgary) TC Energy shareholders voted in favor of splitting the company into two separate companies on Tuesday, including one that will handle pipelines.
Shareholders present at the annual general meeting approved the project, which was announced in July by the Calgary-based company. The two separate companies will be listed on the stock exchange.
TC Energy will become more like a utility company, focusing on natural gas infrastructure, nuclear and pumped hydro storage, and new low-carbon energy opportunities.
The company’s pipelines, including the Keystone pipeline system, will be owned by a new liquids pipeline company called South Bow.
The new company will be headquartered in Calgary with an office in Houston and will be led by Bevin Wirzba, currently executive vice-president of TC Energy’s natural gas and liquids pipeline operations.
At Tuesday’s annual general meeting, TC Énergie President and CEO François Poirier said separating the company’s business sectors would allow for faster growth.
The proposed split is the result of a two-year strategic overhaul by TC Energy, during which it considered other options, including the sale of its pipeline operations.
TC Energy has come under scrutiny from analysts and credit rating services due to its significant debt load and cost overruns related to the Coastal GasLink pipeline project, which was completed in fall 2023 .
The separation of the company’s pipeline business, which has long-term contracts with oil shippers, will allow South Bow to use its cash flow to pay down debt and improve shareholder returns, while TC Energy becomes a growth-oriented company focused on natural gas.
“Make no mistake, natural gas will be at the heart of the world’s energy future,” Poirier said.
TC Energy believes it can attract a broader set of investors than it could before the spin-off by offering an investment opportunity focused entirely on natural gas and low-carbon energy.
In a note to clients Tuesday, TD Cowen analyst Linda Ezergailis said she anticipates South Bow will work to inflate the value of its pipeline network by increasing capacity in underutilized parts of the system. The new company is also expected to increase pipeline connectivity to have additional receipt and delivery points.
Ms. Ezergailis believes the new version of TC Energy would be well positioned to play a key role in the energy transition and reducing global greenhouse gas emissions, while ensuring reliability to meet growing energy demand.
“We view the successful vote as an important step in the execution of strategic priorities, including improving the financial leverage ratio,” she said.
Under the spin-off agreement, TC Energy shareholders will receive, in exchange for each share, one new TC Energy common share and 0.2 common share of South Bow.
The separation is expected to be finalized in the second half of 2024.
