TC Energy's oil pipeline spin-off faces obstacles in bet on US Gulf

WINNIPEG, Manitoba - TC Energy's planned oil pipeline spin-off is a bet that it can supply more Canadian crude to U.S. Gulf of Mexico refiners, but the venture faces stiff competition and will carry high debt when it starts up.

Gulf exports are not a strong option, however, for South Bow, which has access to third-party marine facilities, said Hillary Stevenson, senior director of energy market intelligence at research organization IIR Energy. South Bow's capital priorities will be repaying debt, organic growth and shareholder returns, its incoming president, Bevin Wirzba, said on a quarterly conference call on Friday.

Construction of Mexico's newest refinery offers just such an opportunity when Pemex's 340,000-bpd Olmeca plant comes online this year, processing more Maya crude domestically instead of on the U.S. Gulf Coast.South Bow will also be constrained by high debt from its start. The spin-off will issue C$7.9 billion in debt to redeem debt that currently sits in TC and expects to carry debt below five times its EBITDA at spin.

South Bow plans to deliver 2-3% compound annual growth, underpinned by a 16-mile crude pipeline tying into International Petroleum Corp's Blackrod oil sands project by 2026, TC has said.

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