TC Energy shareholders approve spinoff, creation of South Bow pipelines business

TC Energy Corp. shareholders have voted in favour of spinning off the company's crude oil pipelines business.

Shareholders at the Calgary-based company's annual meeting Tuesday endorsed the company's plan, announced last July, to split into two separate publicly traded companies.

The plan will see TC Energy look more like a utility company, with a focus on natural gas infrastructure as well as nuclear, pumped hydro energy storage and new low-carbon energy opportunities.

The company's crude oil pipelines, including the critical Keystone pipeline system, will become part of a new liquids pipeline business called South Bow.

South Bow will be headquartered in Calgary with an office in Houston. It will be led by Bevin Wirzba, the current executive vice-president for TC Energy's natural gas and liquids pipelines business.

At Tuesday's annual meeting, TC Energy CEO Francois Poirier said separating the company's lines of business will allow for faster growth.

"As two separate entities, each company will have the ability to focus on their distinct strategies and opportunity sets, delivering essential energy that the world relies upon," Poirier said.

The spinoff plan is the result of a two-year strategic review by TC Energy, in which the company considered other options including the potential sale of the oil pipelines business.

The company has been under scrutiny by analysts and credit rating services for its significant debt load as well as for cost overruns on the Coastal GasLink pipeline project, which was completed in the fall of 2023.

Spinning off the oil pipelines business, which has long-term committed contracts with oil shippers, will give South Bow the chance to use its robust cash flows to pay down debt and enhance shareholder returns, while TC Energy will become a growth-oriented company focused on natural gas.

TC Energy which has natural gas transportation infrastructure in Canada, the U.S., and Mexico is bullish on the future of the commodity, in particular the potential for growth spurred by demand for liquefied natural gas (LNG).

"Make no mistake, natural gas will be central to the world's energy future," Poirier said.

In addition, by offering a pure-play natural gas and low-carbon investment opportunity, TC Energy believes it can attract a wider set of investors than it could before the spinoff.

In a note to clients Tuesday, TD Cowen analyst Linda Ezergailis said the new South Bow is expected to work towardenhancing the value of its pipeline network by increasing capacity on under-utilized portions of the system, as well as increasing pipeline connectivity to additional receipt and delivery points.

She said she believes the new TC Energy will be well-positioned to play a key role in enabling energy transition and reducing global emissions, while ensuring reliability for growing energy demand.

"We view the successful spinoff vote as a significant milestone on executing strategic priorities, including improving leverage metrics," she said.

As part of the spinoff arrangement, TC Energy shareholders will receive, in exchange for each share, a new TC Energy common share along with 0.2 of a South Bow common share.

The spinoff is expected to close in the second half of this year.