Varcoe: 'A $15B startup' — TC Energy to spin out oil pipelines into South Bow

‘Everyone is on board, everyone is excited, and it’s because it’s such a unique opportunity’

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Get ready for the debut of South Bow.

Shareholders in TC Energy on Tuesday approved the company’s plan to spin out its oil pipelines into a new publicly listed company.

For Bevin Wirzba, who will become the chief executive of South Bow — soon to be the next Calgary-based midstream business — it’s a chance to build a new company as global energy demand and Canadian oil production continue to expand.

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“It’s a once-in-a-lifetime opportunity for not only the team, but for the board to have effectively a $15-billion startup to create and envision, as a team of founders,” the 52-year-old Edmonton native said in an interview Tuesday at TC Energy’s head office.

“Everyone is on board, everyone is excited, and it’s because it’s such a unique opportunity.”

At TC Energy’s annual meeting, investors supported the company’s strategy to spin off its liquids pipeline business to unlock incremental growth, saying it would give both firms the ability to pursue their own objectives and opportunities.

Calgary-based TC will continue as a natural gas infrastructure and power-energy business, which includes its 48 per cent stake in Bruce Power.

South Bow, with a new head office in Calgary’s Manulife Place and about 600 employees, will operate more than 4,000 kilometres of crude oil pipelines in North America.

Its assets include the existing Marketlink and Keystone pipelines, which move western Canadian oil south, and the Grand Rapids and White Spruce pipelines within Alberta.

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The company’s chair is industry veteran Hal Kvisle, previously chief executive of TransCanada (before its name was changed to TC Energy).

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South Bow will trade on the New York and Toronto stock exchanges once its separation from TC is completed sometime in the fall. Shareholders will receive one new TC common share and 0.2 of a South Bow common share.

TC Energy CEO Francois Poirier called the decision to spin out South Bow a monumental moment.

“We know the demand for energy continues to grow and the world is placing greater focus on energy security. Spinning off South Bow will allow both companies to maximize the value of their respective assets,” he said during the meeting.

“As two separate entities, each company will have the ability to focus on their distinct strategies.”

Francois Poirier
Francois Poirier as seen in 2015. Adrian Wyld/The Canadian Press

Tortoise Capital senior portfolio manager Rob Thummel, which holds shares in TC Energy, said he sees the oil side of the North American midstream business as being relatively stable, while the natural gas side has more longer-term growth potential.

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“We really like natural gas pipelines. Crude oil pipelines are fine, but they’re a little bit more of a mature industry,” he said Tuesday.

“I think we’ll be in both securities.”

Wirzba, who is TC’s executive vice-president, joined the company in July 2019, having worked in the industry since the 1990s.

An engineering graduate of the University of Alberta, his first summer internship was with Nova Corp., before its blockbuster merger with TransCanada in 1998.

He worked in the field with Chevron and later was a managing director in energy advisory for RBC Capital Markets, before serving as an executive with ARC Resources.

“There wasn’t a specific ambition for me to ever be a CEO,” Wirzba said.

“I just wanted to be part of the conversation and be part of a great team, and at this period of time, it feels like this is the season where my skills and background fit.”

Wirzba started at TC Energy as it was still advancing the contentious Keystone XL development. Construction began in 2020, before its cross-border permit was cancelled by U.S. President Joe Biden in January 2021.

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The project “was certainly not for the faint of heart” but Wirzba was intrigued by the proposed pipeline and the benefits it could deliver.

“I got a call that there was an opportunity at TC to take on the liquids business as a senior leader of the Keystone XL project, and I’ve been passionate about this industry since the start of my career — and I believed in the project,” he said.

“The notion of trying to do something big and challenging and audacious was interesting to me. I’m not afraid of challenges and so that’s what led me into TC.”

South Bow CEO Bevin Wirzba
South Bow CEO Bevin Wirzba was photographed in the company’s downtown offices on Tuesday, June 4, 2024. Gavin Young/Postmedia

After the project was cancelled, the company did a strategic review of its liquids business to examine options to maximize value, eventually looking at a potential sale, a joint venture, a spin-out or keeping the status quo.

Now, it’s about to be carved out as a new company.

“The spin-off is a good way to differentiate the high-growth portions and the low-growth, high-yield portions of TC Energy. This should let shareholders pick which type of business they want to own,” Morningstar analyst Stephen Ellis said in an email.

The new moniker South Bow reflects the company’s roots near the Bow River, where the legacy business was founded, but also the importance of its system moving energy south of the border, where about 70 per cent of the company’s revenues are generated.

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The new business is not looking at building massive new projects — “we’ve moved on from the development of a brand-new kind of Keystone XL system” — but it will consider growing through low-risk, modest capital investments that capitalize on its existing assets, such as adding short lateral connections to its network.

Wirzba notes the oilsands have grown production by about one million barrels per day over the past decade and will keep increasing output in the next decade.

“I see the oilsands as the strongest, most resilient supply that can feed the strongest and most resilient demand,” he added.

“There’s no equivalent upstream resource that can compare in terms of its attributes.”

Chris Varcoe is a Calgary Herald columnist.

[email protected]

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