TC Energy hikes Coastal GasLink pipeline costs more than expected, shares plunge

By Arshreet Singh and Rod Nickel

(Reuters) -North American pipeline operator TC Energy Corp on Wednesday raised its cost estimate more than expected for completing its troubled Coastal GasLink project, sending share prices sharply lower.

First announced in 2018, the 670-km (416-mile) pipeline will transport natural gas to the Shell Plc-led LNG Canada facility on the west coast of British Columbia, Canada's first liquified natural gas export terminal.

The long-delayed pipeline, owned by private equity firm KKR & Co Inc, Alberta Investment Management Corp and TC, has been dogged by problems including protests over environmental concerns, inflation and mountainous terrain that has forced TC to move pipe with ski lifts.

The company attributed the cost increase to a labor shortage, poor work by contractors and adverse weather.

Coastal's costs are now up 30% to to C$14.5 billion ($10.89 billion), from the project's previous estimate of C$11.2 billion, which was already raised by 70% in July from the initial budget. Analysts at BMO, Scotiabank and RBC said the latest increase was slightly higher than expected.

Costs could increase by another C$1.2 billion if construction extends well into 2024, TC added.

"Given the history of cost overruns ... we believe that the cost and timing of the project will be an overhang for the stock," said RBC analyst Robert Kwan, in a note.

TC's Toronto-listed shares fell 6.5% and have lost 18% since the company warned in November that Coastal's costs were increasing.

Chief Executive François Poirier said the increase was disappointing but the company remains focused on mechanical completion by the end of 2023. Work is 83% complete.

Among Coastal GasLink's problems, its workers were attacked by masked assailants last February, damaging equipment and construction trailers worth millions of dollars.

The expansion of oil pipeline Trans Mountain, owned by the Canadian government, has also seen cost hikes and delays.

TC is looking to sell C$5 billion worth of assets this year to raise funds to repay debt and pay for projects including Coastal.

TC Energy raised its overall 2023 capital expenditure outlook to C$11.5 billion-C$12 billion from C$9.5 billion earlier, partly due to Coastal's higher costs.

An impairment will be recognized to TC Energy's equity investment in Coastal in its fourth-quarter results scheduled for Feb. 14, the company said.

($1 = 1.3309 Canadian dollars)

(Reporting by Arshreet Singh and Rod Nickel in Winnipeg; Editing by Rashmi Aich and Diane Craft)