Indigenous communities have the innovation and drive to build a cleaner more resilient energy sector. That is why Canada is investing to increase Indigenous economic participation in energy infrastructure projects.
TC PipeLines, LP reported net income attributable to controlling interests of $55 million and distributable cash flow of $70 million for the three months ended June 30, 2019.
"Our portfolio of high quality natural gas pipelines performed well in the second quarter of 2019, continuing to benefit from strong natural gas flows and contracting levels. The decrease in earnings year-over-year was expected and is largely reflective of the Bison contract payouts late last year together with the rate decreases emanating from the 2018 FERC actions," said Nathan Brown, President of TC PipeLines, GP, Inc. "We have continued to pay down debt with available cash during the quarter and believe that our healthy balance sheet positions us well to self-fund our current level of organic growth with capacity to fund additional expansions down the road. Through the medium term, we are targeting a run-rate for our bank leverage metric in the high three to low four times area and a coverage ratio of 1.3 to 1.4 times. We right-sized our distribution in 2018 to be able to meet these targets and we are maintaining it at the current level of 65 cents per unit again this quarter."
"Our Portland XPress and Westbrook XPress projects are progressing well and we expect they will both be fully in-service by late 2022. We continue to source additional expansion opportunities such as our potential North Baja expansion and a project on our Iroquois pipeline together with other organic growth options and will keep the market apprised of these projects as they progress. The strong demand for natural gas transportation on our current suite of assets is necessitating important maintenance and other capital work on our systems which we are performing to ensure ongoing safe and reliable operations for our customers," added Brown. "We continue to believe that our assets are well situated to serve our customers and their need for natural gas transportation and will create value well into the future."
Second quarter highlights (unaudited)
- generated net income attributable to controlling interests of $55 million
- paid cash distributions of $47 million
- declared cash distribution of $0.65 per common unit for the second quarter of 2019
- generated EBITDA of $99 million and distributable cash flow of $70 million
- reduced overall debt balance by $83 million, including a $50 million payment on our 2013 Term Loan Facility
- received approval from the Federal Energy Regulatory Commission (FERC) to increase the certificated capacity on Portland Natural Gas Transmission System (PNGTS) for Phase I of its Westbrook XPress project
- Standard & Poor's (S&P) upgraded credit rating to BBB/Stable from BBB-/Stable
Recent business developments:
Cash distributions - On July 23, 2019, the board of directors of our General Partner declared the Partnership's second quarter 2019 cash distribution in the amount of $0.65 per common unit payable on August 14, 2019 to unitholders of record as of August 2, 2019. The declared distribution to our General Partner was $1 million for its two percent general partner interest.
Credit rating upgrade - On July 23, 2019, S&P upgraded the Partnership's credit rating to BBB/Stable from BBB-/Stable primarily due to the improvement in our financial risk profile resulting from our ongoing deleveraging efforts.
2018 FERC actions update:
On May 24, 2019, Northern Border's amended settlement agreement previously filed with FERC on April 4, 2019 was approved by the FERC and its 501-G proceeding was terminated. Until superseded by a subsequent rate case or settlement, effective January 1, 2020, the amended settlement agreement extends the two percent rate reduction implemented on February 1, 2019 to July 1, 2024.
FERC has now closed all 501-G dockets for our pipeline systems with the exception of Great Lakes.
Growth projects update:
PNGTS' Portland XPress (PXP) Project - Our PXP project was initiated in 2017 in order to expand deliverability on the PNGTS system to Dracut, Massachusetts through re-contracting and construction of incremental compression within PNGTS' existing footprint in Maine. The project was designed to be phased in over a three-year period which began November 1, 2018 (Phase I). Phases II and III are expected to be in-service on November 1, 2019 and 2020, respectively. Beginning 2021, the project is expected to generate approximately $50 million in annual revenue for PNGTS. During 2018, PNGTS filed the required applications with FERC for all three phases of PXP which included an amendment to its Presidential Permit and an increase in its certificated capacity through the addition of a compressor unit at its jointly owned facility with Maritimes and Northeast Pipeline LLC to bring additional natural gas supply to New England. The total final volume of the project is approximately 183,000 Dth/ day; 40,000 Dth/day from Phase I, 118,400 Dth/day from Phase II, which includes re-contracting and renewal of expiring contracts, and 24,600 Dth/day from Phase III. We continue to advance this project and have received all approvals for filings to date. We intend to file with FERC for approval to proceed with construction of Phase III of the project in early 2020.
PXP is secured by long-term agreements and when all phases of the project are in service, PNGTS will be effectively fully contracted until 2032.
PNGTS' Westbrook XPress Project (Westbrook XPress) - Westbrook XPress is an estimated $125 million multi-phase expansion project that is expected to generate approximately $35 million in revenue for PNGTS on an annualized basis when fully in service. It is part of a coordinated offering to transport incremental Western Canadian Sedimentary Basin natural gas supplies to the Northeast U.S. and Atlantic Canada markets through additional compression capability at an existing PNGTS facility. Westbrook XPress is designed to be phased in over a four-year period with Phases I, II and III estimated in-service dates of November 2019, 2021, and 2022, respectively. These three phases will add incremental capacity of approximately 43,000 Dth/day, 69,000 Dth/day, and 18,000 Dth/day, respectively. Westbrook XPress, together with PXP, will increase PNGTS' capacity by 90 percent from 210,000 Dth/day to approximately 400,000 Dth/day.
FERC issued an Order Granting Certificate on July 2, 2019, approving PNGTS' request to increase its certificated capacity under Westbrook XPress Phase I, effective November 1, 2019.
Iroquois Gas Transmission ExC Project (Iroquois ExC Project) - In May 2019, one of Iroquois' customers, Consolidated Edison, Inc., announced that they had reached a precedent agreement to develop and permit incremental pipeline delivery capacity into New York City. Iroquois' "Expansion through Compression" or ExC Project would optimize the Iroquois system to meet current and future gas supply needs of utility customers while minimizing environmental impact through enhancements at existing compressor stations along the pipeline. If successful, the project's total capacity is expected to be approximately 125,000 Dth/day with an estimated in-service date in November 2023. The capital cost of this project is still to be determined as the optimal facility set is finalized during the regulatory process for this potential expansion. This project would be 100 percent underpinned with 20-year contracts.
Results of operations
The Partnership's net income attributable to controlling interests decreased by $18 million in the three months ended June 30, 2019 compared to the same period in 2018, mainly due to the following:
Transmission revenues - Revenues were lower due largely to the decrease in revenue from Bison Pipeline LLC (Bison). During the fourth quarter of 2018, two of Bison's customers elected to pay out the remainder of their contracted obligations on Bison and terminate the associated transportation agreements. Revenues were further reduced by the following:
- lower revenue on GTN due to its scheduled 10 percent rate decrease effective January 1, 2019 as part of the settlement reached with its customers in 2018; and
- lower revenue from PNGTS primarily due to the expiration of its legacy recourse rate contracts, partially offset by revenues from Phase I of PXP which went into service November 1, 2018.
Equity earnings - The $6 million decrease was primarily due to the following:
- decrease in Great Lakes' and Northern Border's equity earnings as a result of rate reductions in early 2019 related to the 2018 FERC actions, together with an increase in operating costs related to compliance programs and allocated management and operational expenses from TC Energy; and
- decrease in Iroquois' equity earnings as a result of the scheduled reduction of its existing rates as part of the 2019 Iroquois Settlement.
Depreciation - The decrease in depreciation expense during the second quarter of 2019 was a direct result of the long-lived asset impairment recognized during the fourth quarter of 2018 on Bison, which effectively eliminated the depreciable base of the pipeline.
Financial charges and other - The $2 million decrease was primarily attributable to the repayment of our $170 million Term Loan during the fourth quarter of 2018 and the net $40 million repayment of borrowings under our Senior Credit Facility during the first quarter of 2019.
EBITDA was lower for the second quarter of 2019 compared to the same period in 2018. The $25 million decrease was primarily due to lower revenue and equity earnings during the period, as discussed above.
Our distributable cash flow decreased by $31 million in the second quarter of 2019 compared to the same period in 2018 due to the net effect of:
- lower EBITDA from our consolidated subsidiaries;
- higher maintenance capital expenditures related to major compression equipment overhauls on GTN and pipe integrity costs on Tuscarora, North Baja and GTN, all the result of higher transportation volumes of natural gas;
- lower interest expense due to repayment of the $170 million Term Loan during the fourth quarter of 2018 and the repayment of the Senior Credit Facility in the first quarter of 2019;
- higher distributions from our equity investment in Northern Border primarily due to lower capital spending related to decreased compressor station maintenance costs, partially offset by reduced earnings as discussed above; and
- lower distributions from our equity investment in Great Lakes primarily due to an increase in its capital spending on its compliance and integrity programs and decreased earnings as discussed above.
Cash flow analysis
Operating cash flows
The Partnership's net cash provided by operating activities increased by $5 million in the six months ended June 30, 2019 compared to the same period in 2018 primarily due to the net effect of: lower net cash flow from operations of our consolidated subsidiaries primarily due to the decrease in Bison's and GTN's revenues, partially offset by an increase in PNGTS' revenue, offset by:
- amount and timing of earnings and cash distributions received from equity investments due to:• lower capital spending related to decreased compressor station maintenance costs on Northern Border;• net higher earnings generated by Northern Border and Great Lakes from the fourth quarter of 2018 to first quarter of 2019 compared to the same period in the prior year;• higher distributions from our equity investments; and
- positive impact from amount and timing of operating working capital changes.
Investing cash flows
During the six months ended June 30, 2019, the cash provided by our investing activities was a net cash inflow of $22 million compared to a net outflow of $8 million in the same period in 2018 primarily due to the net impact of the following:
- $50 million distribution received from Northern Border as a return of investment; partially offset by
- higher capital maintenance expenditures on our consolidated subsidiaries and continued capital spending on PXP.
Financing cash flows
The Partnership's net cash used for financing activities was approximately $41 million higher in the six months ended June 30, 2019 compared to the same period in 2018 primarily due to the net effect of:
- $20 million increase in net debt repayments;
- $28 million decrease in distributions paid primarily due to the $0.35 per common unit reduction in distribution payments during the first quarter of 2019 related to performance during the fourth quarter of 2018 as compared to the same period in 2018 in response to the 2018 FERC Actions;
- $2 million decrease in distributions paid to Class B units in 2019 as compared to 2018;
- no ATM equity issuances in 2019 year-to-date; and
- $12 million increase in distributions paid to non-controlling interests during the six months ended June 30, 2019 compared to the six months ended June 30, 2018 resulting from PNGTS' higher revenue in the first quarter of 2019 compared to its revenue in the first quarter of 2018.
At June 30, 2019, our cash and cash equivalents balance was higher than our position at December 31, 2018 by approximately $12 million and our debt balance was lower by $115 million, $83 million of which was reduced during the second quarter. As of August 1, 2019, the available borrowing capacity under our Senior Credit Facility is $500 million. We believe our cash position, remaining borrowing capacity on our Senior Credit Facility, and our operating cash flows are sufficient to fund our short-term liquidity requirements, including distributions to our unitholders, ongoing capital expenditures and required debt repayments.
More from Industry News
While both Alberta and Texas were hit hard by the oil-price drop in 2014, the Texas unemployment rate has dropped while the Alberta rate has risen, finds a new study released today by the Fraser Institute, an independent, non-partisan Canadian public policy think-tank.
Obsidian Energy has continued to make good progress moving through the second quarter of 2019, according to its most recent financial reports.
Certarus Ltd. enters into CNG supply agreement with Kirkland Lake Gold for its Canadian mining operations
Certarus Ltd. has entered into a long term compressed natural gas ("CNG") supply agreement with Kirkland Lake Gold for the implementation of bulk compressed natural gas to service the heating requirements at all of its Canadian mining operations.
FLO Components Ltd. is representing Macnaught in Ontario and Manitoba. Macnaught has been a manufacturer of grease, oil and fuel equipment, hose reels and positive displacement flow meters for the agricultural, automotive, industrial, mining and transport industries across the globe, since 1948.
CAS DataLoggers provided the data acquisition solution for MTS Solutions, an oil field service company headquartered in Bakersfield, California. MTS has been providing well stimulation services in California for over 30 years, maximizing production for clients using both traditional and green products. Data Acquisition Operations Engineer Kevin England explains, "We're a small business 25-man crew, as opposed to a multi-national company, so we needed a cost-effective monitoring solution for our jobs that still had the advanced functionality our customers require."
Baker Hughes announced that the Baker Hughes Rig Count for the U.S. is down 8 rigs from last week to 934, with oil rigs down 6 to 764, gas rigs down 2 to 169, and miscellaneous rigs unchanged at 1. This is the tenth straight week that the American rig count has declined,
Single Phase Power Solutions, the world's only manufacturer of high horsepower single phase electric motors, match their motors to a pump to provide instant productivity. Available from 30 to 100 HP these single phase pump solutions are easily installed by simply connecting to available single phase utility power - they do not require a phase converter or Variable Frequency Drive (VFD). The company incorporates their Belle Single-Phase MotorT which uses Written-PoleR technology to power standard suction end centrifugal pumps, rotary gear pumps, and turbine pumps in both horizontal and vertical configurations. These pump solutions are ideal for irrigation, drinking water distribution, well pumps, aquifer management, water treatment, wastewater pumping, wastewater collection, wastewater treatment and discharge, and other water and wastewater processing applications. With expertise in pump systems design and manufacture, Single Phase Power Solutions team helps determine the correct materials and style of pump to suit specific application requirements.
In its second quarter financial results, AltaGas Canada Inc. announced that the business is maintaining a strong position and will continue to move forward with growth programs in the near future.
KROHNE, Inc. announces PipePatrol, a comprehensive suite of software modules for long or short distance single and multiproduct pipelines for oil, gas, water, chemical or refined products offers monitoring and protection of pipelines in all operating conditions.
Baker Hughes, a GE company announced that the Baker Hughes international rig count for July 2019 was 1,162, up 24 from the 1,138 counted in June 2019, and up 165 from the 997 counted in July 2018. The international offshore rig count for July 2019 was 255, up 9 from the 246 counted in June 2019, and up 38 from the 217 counted in July 2018.
Superior Industries, Inc., the U.S. based manufacturer and global supplier of bulk material processing and handling systems, has announced a new partnership with Canada's largest distributor of conveyor belting, components and other bulk material handling solutions. Belterra, a 50-year-old distributor with 19 locations throughout the country, will stock, sell and service Superior's conveyor idlers, pulleys, scrapers and accessories in Quebec.
Motive Offshore Group, specialists in marine equipment fabrication and rental, has announced the launch of Motive Personnel - a division specifically created to provide offshore technicians to its global customer base.
Abrado Wellbore Services, the specialist global, expandable section milling plug and abandonment service technology company, has secured a multi-million dollar contract from Chevron's Environmental Management Company to support the plug and abandonment (P&A) of more than 30 wells offshore California.
Baker Hughes announced that the Baker Hughes Rig Count for the U.S. is down 4 rigs from last week to 942, with oil rigs down 6 to 770, gas rigs up 2 to 171, and miscellaneous rigs unchanged at 1.
Iris Automation, Skyfront and Echodyne power first ever beyond-visual-line-of-sight drone flight without human visual observers
The University of Alaska's Unmanned Aircraft Systems Integration Pilot Program (UASIPP) has conducted the first ever beyond-visual-line-of-sight (BVLOS) drone operation without visual observers, an industry milestone powered by Iris Automation's on-board, and Echodyne's ground-based, detect-and-avoid systems integrated onto a Skyfront Perimeter UAV.
MEG Energy announces record $195 million free cash flow, $285 million debt repayment and new 5-Year credit facility
MEG Energy Corp. has reported its second quarter 2019 operational and financial results. The company reported a record free cash flow of $195 million for the quarter, a solid production level and good movement towards its yearly targets.
Canadian Natural has announced its second quarter results for 2019, with the company stating its diverse, balanced asset base plus flexible capital allocation helped an adjusted funds flow of approximately $2.7 billion.
Mammoet has announced its intentions to acquire ALE. Both companies are specialists in engineered heavy lifting and transport for sectors such as the petrochemical industry, renewable energy, power generation, civil construction and the offshore industry.
The Petroleum Services Association of Canada (PSAC), in its third update to its 2019 Canadian Drilling Activity Forecast, announced that it is decreasing its forecasted number of wells to be drilled (rig released) across Canada for 2019 from 5,300 (May 2019 revision) to 5,100 wells drilled. PSAC based its updated 2019 Forecast on average natural gas prices of $1.60 CDN/Mcf (AECO), crude oil prices of US$57.00/barrel (WTI) and the Canada-US exchange rate averaging $0.76.
Encana Corporation has announced its second quarter 2019 financial and operating results, reporting solid production increases and continued movement in repurchasing of its common shares, among other highlights.
The National Energy Board (NEB) has determined that the Coastal GasLink Pipeline Project (Project) does not fall within its jurisdiction. The Project does not form a part of the NOVA Gas Transmission Ltd. (NGTL) System, and is not vital or integral to it (NGTL), or any other federally regulated pipeline.
The Joint Review Panel established to review the Frontier Oil Sands Mine Project, proposed by Teck Resources Limited (the proponent), has submitted its report to the Minister of Environment and Climate Change. The review was completed in accordance with the Agreement to Establish a Joint Review Panel for the Frontier Oil Sands Mine Project, issued on May 19, 2016 and amended on August 24, 2017.
The Petroleum Services Association of Canada (PSAC) has announced that its "PSAC Working Energy Golf Classic", powering Canadian energy and education and raising funds for awareness and education, raised over $39,000 thanks to the generosity of energy industry companies, employees, their guests, and the numerous sponsors whose livelihoods depend on the health of the industry. The sold-out event took place July 24 at the Inglewood Golf & Curling Club.
Cenovus Energy Inc. reduced net debt to $7.1 billion in the second quarter after generating over $830 million in free funds flow. The company's excellent financial performance was driven by higher realized oil prices, which contributed to oil sands operating margin of more than $1.0 billion.
Husky Energy generated funds from operations of $802 million in the second quarter, with net earnings of $370 million. Cash flow from operating activities, including changes in non-cash working capital, was $760 million, compared to $1 billion in Q2 2018.
Suncor has reported strong performance during the second quarter of 2019, despite the ongoing impact of production curtailments in Alberta.
Cuda Oil and Gas Inc. has entered into a series of binding Asset Purchase Agreements to sell all of its oil and gas assets and related liabilities located in the Province of Quebec at a total transaction value of CAD$10.59 million, including cash consideration at closing of CAD $4.29 million, to arm's-length purchasers. The Transaction is anticipated to close on or about August 30, 2019.
Cenovus Energy Inc. has published its 2018 environmental, social & governance (ESG) report detailing the company's progress in advancing environmental, health and safety performance, investing in and engaging with the communities where it operates and maintaining the highest standards of corporate governance. A number of Cenovus's key performance indicators for land, air and water improved last year, partly due to ongoing process improvements and partly due to the sale of the company's legacy conventional assets in 2017 and early 2018.
A major new initiative that adds genomics technologies to traditional geoscience aims to reduce the risk for oil exploration in Nova Scotia's offshore.
The NEB has decided how regulatory processes for the Trans Mountain Expansion Project (Project) will continue, including detailed route and condition compliance processes.
Messer highlights new "Huff 'N Puff" treatment to recharge well stimulation at the Unconventional Resources Technology Conference 2019
At URTeC 2019, Messer is highlighting its RECHARGE HNP, or "Huff ‘n Puff," technology, a proven solution for well production enhancement. Ideal for re-stimulating depleted oil and gas wells, the energized RECHARGE HNP treatment combines the proven enhanced recovery properties of carbon dioxide (CO2) or nitrogen (N2) with the latest in advanced nanoparticle technology from Nissan Chemical. URTeC takes place July 22 – 24 in Denver.
Suncor has released its annual Report on Sustainability which details the company's environmental, social and economic performance. Suncor's perspective on the challenges and opportunities of climate change, and the transition to a low-carbon economy are contained in its third Climate Risk and Resilience Report available within the Report on Sustainability and as a stand-alone downloadable PDF. The annual Report on Sustainability is available both online and as a downloadable PDF.
The ability of Canada's energy sector to attract investment has been weakened by several government policies in recent years, all the while investment in the United States has soared, finds a new collection of essays released today by the Fraser Institute, a Canadian policy think-tank.
FortisBC has entered into its first term supply agreement to produce liquefied natural gas (LNG) for Top Speed Energy Corp. to export to China. This term supply agreement is an unprecedented development in Canada's LNG export industry and was made possible by the completion of the Tilbury LNG expansion project in Delta, B.C. earlier this year.
The Canadian Environmental Assessment Agency (the Agency) must decide whether a federal environmental assessment is required for the proposed Kitimat LNG Expansion Project, located at Bish Cove, near Kitimat, British Columbia.
Canada's Oil Sands Innovation Alliance (COSIA) is pleased to announce the appointment of Wes Jickling as the organization's next Chief Executive, effective August 6, 2019. The appointment aligns with COSIA's updated strategic plan, focused on accelerating environmental performance through collaborative action and innovation, while sharing its story with Canadians and beyond.
Encana Corporation wholly owned subsidiary Newfield Exploration Mid-Continent Inc. has signed an agreement to sell its natural gas assets in Oklahoma's Arkoma Basin to an undisclosed buyer. Total cash consideration to Encana under the transaction is $165 million. The agreement is subject to ordinary closing conditions, regulatory approvals and other adjustments and is expected to close in the third quarter of 2019.
Campaigns that attack Alberta's energy interests will be investigated through a public inquiry launched by the provincial government.
The Canadian Environmental Assessment Agency (the Agency) has commenced a federal environmental assessment for the proposed Central Ridge Exploration Drilling Project, located approximately 375 kilometres east of St. John's, Newfoundland and Labrador, in the Atlantic Ocean.