TC Energy reaffirms Keystone XL commitment after permit pulled

Houston — TC Energy on Friday reaffirmed its commitment to the controversial Keystone XL pipeline and a 2023 startup date even after a federal judge yanked a key water permit in April.

With substantial new financial backing from the Alberta provincial government, TC Energy announced at the end of March it would begin Keystone XL construction and then began early construction activity in April in Montana near the US-Canadian border. But heavier construction slated for this summer was put in jeopardy after a federal judge in Montana ruled that the US Army Corps of Engineers' expedited permitting process did not properly consider the pipeline's impact on endangered species.

"We are reviewing options to address the impact of this ruling and to secure the necessary authorizations to continue with planned Keystone XL construction," TC Energy said in its first-quarter 2020 earnings release Friday. "The pipeline is expected to enter service in 2023, and will play a critical role in connecting the world's third-largest oil reserves in the Canadian oil sands with the continent's largest refining market in the US Gulf Coast."

The $9 billion pipeline project would move up to 830,000 b/d of heavy Canadian crude ultimately to Texas through the entire Keystone system. The 1,200-mile XL pipeline from Alberta to Nebraska would connect to the existing Keystone system. The 2023 timeline already was factoring in anticipated delays of up to a year, energy analysts said, and TC Energy acknowledged legal and other delays could last a year or so.

Bucking the trend of almost every other company in the energy sector, TC Energy is actually increasing its 2020 capital budget because of the addition of Keystone XL construction, going up to $7.1 billion from about $5.7 billion, but that includes a new injection of Canadian taxpayer funds.

In reality, CEO Russ Girling said in the earnings call that TC Energy still expects "some slowdown" of its 2020 construction activities and capital spending from the coronavirus pandemic as the year progresses.

TC Energy made the surprising announcement to quickly proceed with the project after it secured $1.1 billion in taxpayer support from the conservative Alberta government -- as well as $4.2 billion in potential government loans -- even though Canadian crude grades are currently valued near all-time lows because of the collapse in global demand as a result of the coronavirus pandemic.

The decade-old project became a focus for environmental protests and the so-called "keep-it-in-the-ground" anti-fossil fuel movement during the Obama administration. And that opposition is not going away. President Barack Obama ultimately rejected plans to build the pipeline, but it was quickly revived under the Trump White House in 2017.

GUIDANCE AND EARNINGS

TC Energy emphasized it is well positioned to fund its obligations, capital investment program and dividends through even a prolonged period of disruption due to the pandemic and the resulting collapse in global crude demand.

In the first quarter though, TC Energy said its net income jumped to about $820 million from roughly $710 million in the same period a year earlier.

TC Energy said its profits grew on natural gas systems but fell on liquids pipelines. The company specifically cited lower uncontracted volumes on the Keystone system and lower profits from liquids marketing activities.

"The availability of our infrastructure has remained largely unimpacted by recent events, with utilization levels robust and in line with historical norms," Girling said in the statement.