Hillcrest Energy Technologies. (CSE: HEAT)
From concept to commercialization, Hillcrest is investing in the development of energy solutions that will power a more sustainable and electrified future.
At the annual shareholder meeting on Tuesday, shareholders of Canadian energy company TC Energy Corp (TSX:TRP) voted in favor of the spin-off plan announced by the company last July to divest its crude oil pipeline business. This move aims to reduce TC Energy’s high debt burden and refocus on its natural gas transportation business.
If the plan proceeds smoothly, TC Energy will split into two independent publicly-traded companies. The divested crude oil pipeline business will form a new liquid pipeline company called South Bow, while the new TC Energy will become a utility company focusing on natural gas infrastructure, as well as nuclear, pumped hydro energy storage and low-carbon energy opportunities.
South Bow will be headquartered in Calgary and will establish an office in Houston, USA. Bevin Wirzba, TC Energy’s current Executive Vice President of Gas and Liquid Pipelines, will lead the company. The company’s assets include nearly 4,900 kilometers of liquid pipelines that connect Alberta and parts of the United States to refineries in Illinois, Oklahoma, and Texas. The most important asset is the Keystone pipeline, a critical conduit for Canadian crude oil exports with a daily transportation capacity of 622,000 barrels.
Ben Pham, an analyst at BMO Capital Markets, stated that South Bow’s single-asset structure and lower growth prospects might pressure its valuation. However, with 94% of Keystone’s capacity secured under long-term transportation contracts, revenue remains stable. Additionally, before deciding on the spin-off of the liquid pipeline business, TC Energy had discussions with two energy infrastructure companies about forming a new joint venture. Robert Hope, an analyst at Scotiabank, suggested that this indicates South Bow could become an acquisition target after its public listing.
South Bow will assume CAD 7.9 billion (USD 5.78 billion) in debt, relying on cash flow from the pipeline business to service the debt and provide shareholder returns. Meanwhile, TC Energy will transform into a growth-oriented company focused on natural gas, with significant gas transportation infrastructure in Canada, the United States, and Mexico.
The company is optimistic about the future of natural gas, especially with the growth potential driven by liquefied natural gas (LNG) demand. Furthermore, Linda Ezergailis, an analyst at TD Cowen, noted that the new TC Energy will play a key role in energy transition and global carbon reduction efforts, and the successful spin-off vote marks an important milestone in executing this strategy, including deleveraging.
Finally, TC Energy shareholders will exchange each share for one new TC Energy common share and 0.2 common shares of South Bow. The spin-off is expected to be completed in the second half of this year.
