TC Energy Maintained at Buy at TPH Following its Investor Day; Price Target at C$74.00

TC Energy Corporation TRP, one of Canada’s leading energy infrastructure companies, recently announced that its plan to sell a stake in its Western Canadian gas pipeline system to Indigenous communities may not unfold as originally designed. This deal, which was set to be the largest Indigenous equity transaction in the history of Canada, has faced unforeseen delays and complications, potentially jeopardizing its completion.

Background of the Proposed TRP Deal

TC Energy’s original plan was to sell an interest in its Natural Gas Transmission Line (NGTL) system to a coalition of approximately 72 Indigenous communities. The deal's total value was estimated at C$1 billion ($715 million) and the transaction was expected to close in the third quarter of the year. This sale was not only a significant business move for TRP but also represented a milestone in Canada’s ongoing efforts to build partnerships between energy companies and Indigenous communities.

The NGTL system, which plays an important role in transporting natural gas across Western Canada, is a key asset for TC Energy. The company intended to raise funds through this deal to help finance its operations and projects while also offering Indigenous communities an opportunity to become stakeholders in one of the country’s most crucial energy infrastructures.

Why TRP’s Deal Faces Delays

However, as the third quarter deadline came near, the oil and gas storage and transportation company faced significant challenges in finalizing the deal. The primary issue was the delayed bond required by the deal to finance the transaction. According to reports, the Indigenous consortium, which had been slated to purchase the stake, was informed that the company could not proceed with the transaction due to complications surrounding the bond financing.

The company’s CEO Francois Poirier addressed the delay during an investor call, explaining that while discussions with the Indigenous communities are still ongoing, the deal’s structure may no longer align with initial expectations. In his comments, Poirier acknowledged that the Indigenous participation in the project may take a form that is different from the originally envisioned outright equity ownership.

This change in the nature of the transaction marks a significant importance for TRP, as it had previously hoped to conclude the sale as a means of both reducing debt and further integrating Indigenous communities into the business landscape of Canada’s energy sector.

Potential Alternatives for Indigenous Involvement in TRP’s Deal

Despite the complications, TC Energy is still engaged in talks with the Indigenous groups involved. While the original equity deal may not come to fruition, there remains a possibility for alternative forms of participation for the Indigenous communities. These alternatives may include partnerships that allow the communities to benefit from the NGTL system’s operations without holding direct equity.

One such possibility is joint ventures where the communities could receive a portion of the project’s revenues without being full owners. Another approach could involve profit-sharing agreements or impact benefit agreements, which are becoming more common in the energy sector of Canada as a way to ensure Indigenous groups receive economic benefits from projects that affect their land.

This shift in strategy indicates a broader trend in the energy industry of Canada, where companies are seeking to foster meaningful partnerships with Indigenous communities to avoid the potential for legal challenges or environmental opposition. These collaborations often involve long-term commitments to addressing the social and environmental concerns of Indigenous groups while simultaneously benefiting from their participation in the economic opportunities created by these projects.

Challenges Faced by TC Energy in Recent Years

The delay in the Indigenous equity transaction comes at a time when TRP has been working to restructure and streamline its business. In recent years, the company has been grappling with cost overruns related to its gas pipeline projects in Canada. These projects have prompted a series of asset liquidations. These sales have been part of the company’s broader strategy to reduce TRP’s debt load and strengthen its financial position.

Despite these challenges, Poirier reassured investors that the company did not require the completion of the stake sale to meet its debt-reduction goals. This indicates that the company is taking a measured approach to managing its financial health, ensuring that TRP’s obligations are met through a variety of avenues beyond the anticipated equity deal.

Implications for the Energy Sector in Canada

The failure to execute the original deal between TRP and the Indigenous communities has broader implications for the energy sector of Canada. The idea of Indigenous ownership in major infrastructure projects, particularly in the oil and gas industry, has become a key part of the conversation surrounding sustainable development and reconciliation in Canada.

The NGTL system sale was set to serve as a model for other energy companies, demonstrating that large-scale infrastructure projects can be structured to benefit both the energy industry and the communities directly impacted by such projects. If the deal falls through, this may slow down similar efforts across the sector, as companies could become more cautious in their negotiations with Indigenous communities.

On the other hand, if TC Energy and the Indigenous consortium can reach an agreement in an alternative form, this could pave the way for more flexible and innovative partnerships that do not necessarily rely on outright ownership but still offer economic and social benefits to the community. Such partnerships would imply a new paradigm for Canada’s energy development, one that balances economic growth with respect for Indigenous rights and land.

Overall, TC Energy's setback in selling a stake in its NGTL system to Indigenous communities highlights the challenges of such projects. While the original deal may not go ahead, alternative participation models could still benefit both the company and Indigenous communities. This situation underscores the importance of building trust and sustainable partnerships between energy companies and affected communities, aiming for a more inclusive and responsible energy industry in Canada.

TRP’s Zacks Rank & Key Picks

Currently, TRP has a Zacks Rank of #5 (Strong Sell).

Investors interested in the energy sector might look at some better-ranked stocks like Petrofac Limited POFCY, Targa Resources Corp. TRGP and TechnipFMC plc FTI, each carrying a Zacks Rank #2 (Buy) at present. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here

Petrofac is valued at $67.34 million. This oil and gas equipment and services company operates across four segments including Onshore Engineering & Construction, Offshore Projects & Operations, Engineering & Consulting Services and Integrated Energy Services.

Targa Resources is valued at $44.39 billion. In the past year, its shares have risen 133.4%. TRGP is a leading provider of midstream energy infrastructure services in the United States. It offers a wide range of services, including gathering, processing, transportation, storage and marketing of natural gas and natural gas liquids.

TechnipFMC is valued at $12.24 billion. This company currently pays a dividend of 20 cents per share, or 0.70%, on an annual basis. FTI is a leading manufacturer and supplier of products, services and fully integrated technology solutions for the energy industry.

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