TC Energy takes $1.4-billion hit over Coastal GasLink pipeline's skyrocketing costs

Calgary-headquartered energy giant TC Energy took a $1.4-billion loss this past quarter, driven by the skyrocketing costs of the Coastal GasLink pipeline.

Coastal GasLink is planned to be Western Canada’s new major gas corridor, aiming to move fracked gas from the Dawson Creek area of British Columbia to a liquefied natural gas (LNG) export terminal on the coast. Originally estimated to cost $6.6 billion, the price tag of the pipeline is now projected to reach $14.5 billion.

The financing update was disclosed earlier this month and confirmed Tuesday morning during a call between TC Energy management and key investors.

Wet’suwet’en hereditary chiefs, who reject the pipeline being built through their unceded territory in northern British Columbia, say it shows their resistance to the project is successfully pushing the cost higher. It’s a strategy aimed at knocking the business case for the project down in the hope investors will pull out.

“When the people said no, the project should stop,” Hereditary Chief Na’Moks said in a statement. “When you have a traditional hereditary government such as Wet'suwet'en say no, the project should not exist.

“The magnitude of how much the project went up in cost should tell the world how dangerous it is. TC Energy investors and those who support it should also know the economic risk that comes with it,” he added.

On Tuesday, TC Energy reported its fourth-quarter earnings and outlook for the year. It announced a $1.4-billion loss in the quarter and plans to spend between $11.5 billion and $12 billion this year expanding its gas network across North America.

One major contributing factor to this quarter’s loss was a $2.6-billion writedown of Coastal GasLink that the company said it was taking earlier this month.

CEO Francois Poirier said Coastal GasLink is 84 per cent complete and the company aims to finish construction this year. If construction is delayed further into 2024, construction costs would increase by another $1.2 billion.

TC Energy does not explicitly credit the Wet’suwet’en resistance to the project with pushing the cost up. Rather, it says “the project has faced material cost pressures” that reflect shortages of skilled labour, contractor underperformance and “other unexpected events.”

Stand.earth climate finance director Richard Brooks said he doesn’t think TC Energy would ever admit to the Wet’suwet’en efforts being responsible because it would be an admission the strategy is working. But Brooks said he thinks the “unexpected events” refer to the multiple work disruptions caused by on-the-ground opposition, the lawsuit members of the Wet’suwet’en nation filed against the company and the continuous presence of RCMP officers used to clear land defenders from the unceded territory.

“All of that adds to the costs, and every day it's delayed, the cost of everything is going up,” Brooks said. “So they can point to the cost of inflation, the cost of labour increasing, the cost of materials increasing, but all of those increases are due to time and their schedule being off, and the reason their schedule is off is… because they have been forced to face down on-the-ground opposition to this project.”

Brooks said TC Energy typically dismisses the impact of the resistance, “but if you look at where the project has been completed to date and where it's still outstanding, there's a very clear overlap there between Wet'suwet'en lands and non-Wet'suwet'en lands,” he said.

TC Energy did not answer questions asking to what extent the Wet’suwet’en hereditary chiefs’ efforts have impacted construction costs, but evidence the delayed construction is hurting the company is emerging.

Days after TC Energy’s dismal cost outlook was released, credit rating agency DBRS Morningstar put the company under review, a decision that has “negative implications” for TC Energy. Morningstar’s press release went on to say TC Energy needs to sell off assets it owns to make up the cash it needs to avoid further downgrades.

Investment analysts from financial firms like RBC Capital Markets, TD Securities, Goldman Sachs and others on Tuesday morning's call were overwhelmingly concerned about cost increases to Coastal GasLink and the potential sell-off of assets. Of 10 analysts asking questions, six asked about Coastal GasLink, and three questions were asked about asset sales, suggesting where banks’ concerns about the company lie.

Despite the cost increases of Coastal GasLink, TC Energy’s vice-president in charge of strategy and corporate development, Bevin Wirzba, said the company has begun evaluating a second phase to the Coastal GasLink pipeline on request from LNG Canada, the export terminal in Kitimat.

“We're very excited to be contemplating the expansion,” Wirzba said. “Project economics, those are obviously confidential, but we're encouraged by the possibility of advancing to a (final investment decision) stage.”

Without revealing any specific numbers, Wirzba suggested a second phase of the project, if built on budget, could help make up for the financial hit TC Energy has taken building the Coastal GasLink pipeline.

“I think it's insanity that they would consider exploring a Phase 2 of this project and expansion,” Brooks said. “To say they're excited about contemplating or opening up those conversations with LNG Canada is completely tone deaf to where we're at in Canada in terms of reconciliation and in terms of fighting climate change.”