TC Energy Corporation Q2 2026 Earnings Call

Thank you for standing by. This is the conference operator. Welcome to the TC Energy Second quarter 2020 Results Conference call. As a reminder, all participants are in a listen only mode, and the conference call is being recorded. After the presentation, there will be an opportunity to ask questions. To join the question queue, you may press star then one on your telephone keypad. Should you need assistance during the conference, you may reach an operator by pressing star, then zero. I would now like to turn the conference over to Mr. Gavin Wylie, Vice President and Investor Relations. Please go ahead.

Thank you. I'd like to welcome you to TC Energy second quarter 2026 Conference Call Joining me are Francois Poirier president and Chief Executive Officer. Sean Executive Vice President and chief Financial Officer, along with other members of our senior leadership team Francois and Sean will begin today with some comments on our operational and financial highlights. A copy of the slide presentation is available on our website under the investors section. Following the remarks, we'll take questions from the investment community. We ask that you please limit yourself to two questions. And if you're a member of the media, please contact our media team. Today's. 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, we'll refer to certain non-GAAP measures that may not be comparable to similar measures presented by other entities. A reconciliation is contained in the appendix of this presentation. With that, I'll now turn the call to Francois.

Thanks, Gavin, and good morning, everyone. I'd like to begin today with an update on the strong momentum we continue to see across our businesses We're capitalizing on the competitive advantages afforded by our incumbent footprint and some of the highest growth markets in North America. And converting strong demand into high return growth projects. Our consistent focus on safety and execution excellence is the foundation that delivers reliable service. It wins new business, and it ultimately drives higher financial performance that continues to create long term shareholder value. For the first half of 2026, we've made meaningful progress on our development pipeline We placed approximately $2 billion of assets into service, largely on time and on budget, or better. And we expect to place. Approximately $3.5 billion into service by the end of the year. Including approximately $700 million of new natural gas pipeline projects. We announced this quarter. We've now sanctioned $3 billion of gross projects at a weighted average unlevered after tax IRR of approximately 12%. Our. Late stage pending approval bucket now stands at approximately $7 billion, up 1 billion from last quarter. This portfolio reflects multiple projects in advanced stages of commercial discussions with large anchor customers, and now includes our crossroads project, where we have executed precedent agreements subject to board approval with multiple anchor customers and are in advanced discussions with several other potential shippers.

We continue to evaluate opportunities to expand the project's scope with additional shippers and expect to sanction the project in the fourth quarter of this year. Looking further. Out. We have over $20 billion of additional projects in advanced stages of origination that align with our targeted 5 to 7 times, build multiple range. Further supporting our long term growth visibility. Collectively. This progress reinforces our ability to grow our capital investments while maintaining our disciplined approach to project execution. Risk adjusted returns and balance sheet strength. Our expanding capital backlog is anchored by fundamental demand growth, driven by the next wave of LNG accelerating power and data center load. LDC reliability and connectivity between low cost supply and high value markets. Each aligning to a strategic pillar of our portfolio. Our. Outlook now points to an approximately 51 Bcf per day of incremental North American natural gas demand by 2035, and that's a 40% increase over 2025 levels. And represents an 11 Bcf a day increase from our original outlook. Accelerating power demand accounts for more than half of this increase. And now represents approximately 16 Bcf per day of incremental growth through 2035. Important. Nearly 70% of this demand growth is concentrated in the U.S. heartland, Alberta and Mexico regions where TC Energy has a strong incumbent position and significant existing infrastructure.

Additionally, customers are increasingly prioritizing supply, diversity and reliability, and by 2035, more than 60% of North American natural gas production will originate from TC Energy connected basins, primarily Appalachia and the Wcsb. So why are we growing our backlog and capturing growth? In the majority of premium markets, we serve. We are the incumbent, often the largest provider, and that allows us to develop cost competitive expansions. Converting this strong fundamental backdrop into our growing capital backlog. Our extensive footprint and our integrated storage capability, and long standing customer relationships allow us to develop innovative commercial solutions that meet evolving customer needs. Today's projects announcements are a clear example of these advantages in action, reflecting growing demand from natural gas fired power generation and data center development. The two U.S. projects on our Columbia system were sanctioned at a weighted average build multiple of approximately 5.8 times, demonstrating the quality of our opportunity set. And in Canada, we continue to serve growing customer demand through our multiyear growth program with the latest expansion project on our Ngtl system. Across. Our systems, we continue to see high quality, low risk, and highly executable opportunities with more to come. Fundamentals in Canada are strengthening and customer demand continues to validate our strategy.

Our outlook calls for. Over eight Bcf per day of additional Canadian natural gas demand through 2035, driven by next wave LNG, including coastal Gaslink phase two and. Industrial growth and evolving power and data center load. Our extensive natural gas franchise is uniquely positioned to capture this growth with the Ngtl system serving as the primary conduit connecting Western Canadian supply to expanding markets within Alberta and across North America. The market signals we're seeing today reinforce this view. Our recent 2029 Greater Edmonton area offering closed, fully subscribed and there are 2030 to 2032. Intra Alberta offerings saw record amounts of participation by data center developers. Given this strong customer interest, we are exploring opportunities to expand this offering to better meet customer demand with. Receipt and export offerings currently in market. We will look to convert visible demand into incremental projects across our Canadian assets. If our focus is straightforward, understand customer demand. Invest where the market is growing at competitive returns and continue to deliver low risk, repeatable performance. On to Bruce Power. We are seeing similar momentum in Ontario power markets, where power demand is expected to grow significantly over the coming decades Against this backdrop, Bruce Power continued execution, excellence is strengthening its ability to competitively serve this growing demand.

As a testament to this, Bruce Power returned unit three to service following its major component replacement. More than seven months ahead of the ISO schedule and approximately 15% below the cost of unit six. The result was driven by a strong focus on innovation and a repeatable stage build approach, capturing learnings from each refurbishment to improve productivity, reduce risk and enhance execution certainty. Disciplined upfront planning and design maturity continue to improve cost, schedule and execution certainty across the program. New. Technologies and automation have already provided meaningful productivity gains, including our unit four. Recently achieving the most efficient. Can do Defuel on record. The Bruce Power story continues to resonate strongly and I'd encourage anyone looking for a deeper dive to review the Bruce Power Investor teaching available on our website. And with that. I'll turn it over to Sean to walk through the numbers.

Thanks, Francois. Good morning everybody. As we walk through the second quarter financial results, I'll also touch on how our strong asset performance continued project delivery excellence and commercial optimization are each contributing to the upper end of our 2026 EBITDA outlook range. Overall, TC delivered a 12% year over year growth in comparable EBITDA, marking another solid quarter of contributions by each of our business units. Our natural gas pipeline businesses performed extremely well, with daily average flows up 3% across our three country network as compared to this same quarter last year, driven by strong customer utilization and high levels of operational availability in. The power and energy solutions. Bruce Power, achieved 99% availability in an exceptionally strong quarter. Following the return of unit three in June from its major component replacement outage that Francois mentioned on the right. Hand side, you'll see that each business increased its comparable EBITDA contribution compared to the same quarter last year. In Canada, gas EBITDA increased by $38 million, or 4%, primarily due to higher flow through depreciation on the Ngtl and Canadian mainline systems, along with higher incentive earnings on the Ngtl system. In the U.S.. EBITDA increased by $129 million, or 12%, due to additional contract sales and higher earnings from A&R and Columbia Gas and our.

Business EBITDA increased by $90 million, or 28%, driven by higher earnings related to the May 25th in-service date of Southeast Gateway, as well as higher earnings from certain US. Finally, in power and energy solutions, EBITDA increased by $60 million or 20% due to higher contributions from Bruce Power, reflecting the early return of unit three. Strong availability and an annual price increase. Overall. It was a great quarter, supported by high system availability and performance across our pipeline assets and a particularly strong contribution from Bruce Power. Turning to our comparable EBITDA outlook. We are now targeting the upper end of our 2026 range of 11.6 to $11.8 billion, reflecting the strong operational performance our teams have delivered year to date and our high degree of confidence in our execution plans for the balance of the year. Looking ahead to 2028, we continue to target comparable EBITDA of 12.6 to $13.1 billion, representing an approximate 6% annualized midpoint growth from our 2025 results. On the right hand side of the page, we've highlighted several of the key financial tailwinds that are contributing to both our 2026 and 2028 outlooks, including many of the same drivers that we've benefited from in 2025. The key drivers include continued strong asset availability, expected rate, case schedules, disciplined project execution, and continued commercial and technical innovation and optimizations across the portfolio.

As Francois highlighted, the depth of our project backlog continues to grow, which is extending the visibility of our development pipeline well beyond 2030. We've introduced a new feature to our net capital expenditure outlook this quarter. So we'll walk through the key data points for you to understand where the project backlog stands First, as Francois mentioned, we've sanctioned approximately $3 billion of growth projects year to date, including today's announcements Second, we've grown our pending approval bucket in gray to approximately 7 billion, up from $6 billion last quarter. And finally, our 20 plus billion dollars backlog of projects in origination. We've added the grey hash bars to our annual capital outlook to provide greater visibility into potential timing of these projects and a new pie chart to the right to highlight the demand. Drivers that are influencing the current composition of this segment of our project backlog. It's worth. Highlighting on the pie chart that nearly two thirds of our origination backlog is associated with power generation. That's consistent with our year over year increase. Natural gas demand outlook that Francois mentioned earlier on slide six. As a general statement on fib timing, I'd say that we're looking to advance opportunities as early as possible, but expect that the sustained growth in our investment pace to occur in 2029, 2030 and beyond.

While some of the FID timelines on our origination pipeline will remain dynamic, our approach to underwriting will remain disciplined Any annual increase in our pacing of capital allocation will be underpinned by strong risk adjusted returns, continued outstanding performance by our project delivery teams on cost and schedule, and our commitment to maintaining our balance sheet strength and our 4.75 times leverage target. Finally, we've released this year's report on sustainability. The report provides a comprehensive overview of our sustainability, performance and progress in support of our strategic priorities. A few highlights I'd like to draw your attention to. DC has. Reduced methane emissions intensity by 24% since 2019. While increasing throughput by 20% and growing our comparable EBITDA in our natural gas business by 57%. Over the same time frame. Our report provides details on the planned pathways to further advance our methane intensity target of a 40 to 55% reduction by 2035, from 2019 levels, in a manner that supports asset competitiveness and strong financial performance. And finally, to evidence the effectiveness of our early and deep engagement with indigenous communities and their meaningful community and economic participation in our projects. I'm pleased to share that we've invested $5.4 billion with Indigenous and Native American businesses from 2021 through 2025.

I encourage you to visit the report on our website to learn more With that, I'll pass the call back to Francois.

Thanks, John. We continue to see the benefits of our disciplined strategy and clear set of strategic priorities. Across the. We've delivered strong performance with second quarter comparable EBITDA increasing 12% year over year. And today we now expect to be at the upper end of our 2026 comparable Ebit outlook range Additionally, the quarter's achievements from the return of Bruce Power Unit three more than seven months ahead of schedule to the sanctioning of approximately $3 billion of growth projects. Year to date. Further reinforces our confidence in the outlook for the business. I'd like to leave you with this. Our confidence is driven not only by the scale of the opportunities we see ahead. But by our ability to consistently execute with. Safety, operational and project execution. Excellence. We will continue to find innovative commercial solutions to meet evolving customer needs. Increase the return on our existing assets, secure new capital projects and consistently deliver solid financial performance. Operator. We're now ready to take questions.

Thank you. We will now begin the question and answer session. To join the question queue, you may press star then one on your telephone keypad. You will hear a tone acknowledging your request. Please limit yourself to two questions. And if you have additional questions, please re-enter the question. Queue. If you are using a speakerphone, please pick up the handset before pressing any keys and to withdraw your question, please press star then two. And our first question for today will come from Theresa Chen with Barclays. Please go ahead.

Good morning and thank you for taking my questions. Would. You elaborate on what you're seeing in terms of demand from your customers in Alberta, in particular, whether it be data center related or just looking at the numerous large scale WC crude egress projects that are currently under development., supporting robust outlook for oil sands production growth and incremental demand for natural gas as well, or from a demand pull perspective on LNG exports. How are these dynamics impacting your ability to negotiate creative tolling structures with Canadian producers? Given already constrained gas take away capacity?

Prices Francois. I'll just say at a very high level, then I'll pass it on to Tina., you know, it's a dynamic in Alberta is similar to the dynamic across our footprint., and as you saw, we've increased our outlook to 51 Bcf a day of growth across the continent by 2035, a growing portion of that gas demand is coming from power generation. And, lots of that opportunity is certainly in Alberta, but also in the US heartland. And of course, we have strong incumbency in, in both those regions. So over to you, Tina.

Yeah, thanks. Francois. Theresa. Specific to your question about Canada,, we are seeing growth across multiple sectors.. Francois mentioned in his opening remarks about 8 to 10 Bcf of incremental demand., for us to address that demand, we have approximately half a dozen service offerings in the market, totaling about one Bcf per day of capacity, spanning both receipt and delivery sides of Ngtl and covering intra Alberta and export points. So these offerings serve as a really helpful marker on the demand signal and directly inform our conversations on our next phase of growth. For Ngtl, near-term demand targeted through the 2029 Greater Edmonton area offering, we saw very strong market uptake on that. And we have 2030 to 20, 32 phased expansion. That's going to unlock over one Bcf of intra basin and egress opportunities. So we're seeing strong interest in the offerings with demand across both egress and intra basin. And we're using this market data to inform our discussions on the next phase of growth across Canada.

Thank you. And maybe turning to the heartland in the US. congratulations on the precedent agreements on crossroads. And we look forward to FID in the fourth quarter., would you be able to share any color at this point? Related to the ultimate size and perhaps relevant economics?, on the project and maybe subsequent expansion opportunities within the same corridor, given the outsized interest you're seeing currently.

Hi. Theresa. This is Tina. Again, we are,, as we. Mentioned, we, we are really pleased to have signed a precedent agreement with a large with large anchor customers for our crossroads expansion. Expect to sanction that in the fourth quarter of this year., we're seeing significant market activity taking place across the Midwest region, which is supportive of broader investment thesis for us ., we're seeing about 5 to 6 Bcf of demand growth across the Midwest, representing about a two Bcf year over year growth expectation out through 2035., we're the largest operator across several Midwest states, including Ohio, Wisconsin. Michigan, Indiana, and our footprint provides really strong delivery presence into those key demand centers. And from a competitive standpoint. Incumbency and integration really matter in this market. So with our Columbia and our crossroads, northern border, Great Lakes systems together give us a highly advantaged footprint from the perspective of the crossroads expansion., we would progress that through the, through the next phase of discussions and sanctioning. And that will fall within our 5 to 7 times build multiple.

Thank you very much for that detailed response.

The next question will come from Praneeth Satish with Wells Fargo. Please go ahead.

Good morning., just on the on the backlog changes. So you increased the pending project backlog by about $1 billion this quarter., and then the potential,, backlog. By 5 billion, I guess. Can we assume that the increase to the pending,, project backlog is basically the crossroads project? And then,, the 5 billion increase to the origination backlog. I mean, that's quite significant. Any more detail you can provide in terms of the type of projects being added? I think, Sean, you mentioned, you know, two thirds is PowerGen, but any more clarity in terms of the split between, you know, US and GTL, Bruce Power and Mexico that you can share?

Yeah.

Praneeth. Sean. I'll take that. Thank you for the good question. I you know, we've got a lot of growth capital showing up in a lot of slides. So let me break it down for you here a little bit on your, your pending approval question., the way to think about that on page seven, you know, we show about 700 million that's been sanctioned. So 700 million moved from pending into sanctioned. And then when you go back to 13, you've seen that our pending has moved up. And yes, that is round numbers largely crossroads. And I would tell you it's you know, going to be slightly north of a billion. But round numbers, you're exactly right. to the. Second part of your question on the potential project inventory, what we're calling origination in our new chart on page 13,, yeah. Look, we felt it important to include actually on the slide this quarter because it is growing quite quickly., as you noted, 20 billion this year on origination in years. As you can see on the hash bar chart. And then a large portion of that is falling outside of 2030 and beyond the,. Largely powers we said two thirds. And then geographically, the way the rule of thumb I would give you on that 20 billion is about two thirds of that is us within that customer segment, partner.

Bar charts. And then the François comments earlier, we have we have quite a bit of activity across Ngtl. And both the producer and the demand side. So about a third of that capital is right now penciled for the Canadian markets.

That's. Very helpful. And then maybe switching gears, you know, you've talked about using AI to optimize your pipeline network, which I think is, is actually one of the more compelling AI use cases that we've seen so far in midstream., can you give us an update, I guess, on that initiative at large? And the results that you've seen so far ?, how much of the system is currently covered by the pilot that you're doing? What are the benefits that you're realizing today? And then how should we think about potentially scaling that pilot across the rest of your system? Can those gains be kind of linearly applied and the time frame to get there? Thanks.

Praneeth. It's Francois. I'll take that one. I appreciate the question. Something we're really excited about ourselves. Look, we have,, we have proof of proof of concept ,, initiatives going,, across the organization. I would say on a fairly small segments of pipe, you know, 100km here, 100km there, type of thing., no, you cannot linear extrapolate linearly, extrapolate because we picked some of the, you know, the, the lowest hanging fruit,, areas where we thought there would be a greater potential,. Maybe a little bit of color on how we're doing this., our teams across the company compete for the capital to implement,, the AI solutions in their regions. So they have to present business cases ., they have to commit to outcomes. And then they get an allocation of capital,, that's a good, strong, fundamental way with accountabilities to deliver outcomes to figure out what the potential is., we're really at the very front end of that process ., it takes time to have people sort of understand that's how we want to do things. And so we only have a near-term target,, for 2026 of $100 million of AI related incremental EBITDA. And we're on track for achieving that,, this year, about halfway there., you know, with two quarters behind us., we expect to be able to articulate that potential in more detail ..

Hopefully by our November time frame,, all the way up to, let's say 2030, but we need to let this process where the teams are provide the business cases and compete for capital inform that for us. So it's still a little bit early to provide that kind of detail., but stay tuned., our intention when we do provide that detail is to do it with lots