TC Energy sells 65% stake in Coastal GasLink Pipeline

TC Energy Corp. [TRP-TSX] has struck a deal to sell a 65% equity stake in the Coastal GasLink Pipeline project to KKR and Alberta Investment Management Corp. (AIMCo) on behalf of certain AIMCo clients.

Concurrent with the completion of the sale, TC Energy expects that Coastal GasLink will enter into a secured project financing construction credit facility with a syndicate of banks to finance up to 80% of the project during construction.

Coastal GasLink involves the construction of 670 kilometres of pipeline and associated facilities. Once complete, the pipeline will have an initial capacity of 2.1 billion cubic feet per day and connect a supply of natural gas supply from Dawson Creek, British Columbia to the LNG Canada liquefaction and export facility being constructed in Kitimat, B.C.

The Douglas Channel near Kitimat provides a suitable coastal port for the export of liquified natural gas to global markets.

All necessary regulatory permits have been received for the project and construction activities have commenced.

After the transaction closes, TC Energy will hold a 35% limited partnership equity interest in Coastal GasLink and will be contracted by the limited partnership to construct and operate the pipeline. This transaction was contemplated in the company’s agreements with LNG Canada, a joint venture among Royal Dutch Shell PLC, Malaysia’s Petroliam Nasional Bhd., PetroChina, Mitsubishi, and South Korea’s KOGAS.

“The partial monetization of Coastal GasLink advances our ongoing efforts to prudently fund our $30 billion secured capital program while maximizing value for our shareholders,” said TC Energy President and CEO Russ Girling.

“We look forward to establishing a long-term relationship with KKR and AIMCo as we advance this critical energy infrastructure project,” he said. “We remain fully committed to the project and will continue to construct, deliver and operate the pipeline on behalf of the partnership.”

TC Energy shares advanced on the news rising 0.23% or 16 cents to $70. The shares are currently trading in a 52-week range of $47.90 and $70.25.

Under the terms of the sale, TC Energy will receive upfront proceeds that include the reimbursement of KRR and AIMCo’s proportionate share of the project costs incurred as of the date of closing as well as additional payment streams through the project’s construction and operation.

The company expects to record an after-tax gain of approximately $600 million upon closing of the transaction, which includes the gain on sale, required revaluation of residual ownership interest to fair market value and recognition of previously unrecorded tax benefits.

TC Energy is working with 20 First Nations that have executed agreements with Coastal GasLink to provide them with an opportunity to invest in the project. As a result, in conjunction with the sale, the company will provide First Nations with an option to acquire a 10% equity interest in Coastal GasLink on similar terms.