By Robb M. Stewart


TC Energy Corp.'s Coastal GasLink project in western Canada has been hit with another budget blowout as the company continues to face cost pressures including shortages of skilled labor, contractor disputes as well as drought and other unexpected events.

The Canadian pipeline company said Wednesday that following a comprehensive cost and schedule risk analysis, it now estimates it will need about 14.5 billion Canadian dollars ($10.9 billion) to complete the project, though it is seeking ways to offset and recover a portion of the revised cost.

With the rise in the cost of the project and the additional funding required, TC energy said it plans to book an impairment to its equity investment in Coastal GasLink in its fourth-quarter financial results, which are due to be released Feb. 14.

TC Energy had warned as recently as late November that it expected to lift the budget estimate for the project due to significant cost pressures and a struggle with drought conditions, and erosion and sediment control challenges. At the time, it said the project was overall 80% done and mechanical completion was still targeted for end-2023.

The price tag for Coastal GasLink--a 416-mile pipeline in British Columbia that will bring natural gas from Dawson Creek to a liquefied natural gas facility in Kitimat built by LNG Canada--jumped 70% to C$11.2 billion last year after TC Energy and LNG Canada struck a revised agreement.

That increase from the original project cost estimate reflected scope increases and the impacts of Covid-19, weather and other events outside of the project's control, TC Energy said last July.

TC Energy said the Coastal GasLink is working with its prime contractors to implement productivity improvements, though the recent review considered the potential impact of an extension of construction well into 2024 which could see costs increase by up to a further C$1.2 billion.

The company said the project continues to make progress and has now reached roughly 83% overall completion.

With the rise in costs for Coastal GasLink, TC Energy's overall 2023 capital expenditure target has been revised upward to about C$12 billion from the C$11.5 billion projected previously, which it said reflects the deferral of certain spending, expected cost-saving initiatives and incremental funding requirements associated with Coastal GasLink.

"We are disappointed with the increase in the Coastal GasLink project costs," said TC Energy President and Chief Executive Francois Poirier.

Mr. Poirier said the company continues to push ahead with plans to sell C$5 billion-plus of assets this year, and strong market interest would support boosting the program to fully fund TC Energy's secured capital program.


Write to Robb M. Stewart at robb.stewart@wsj.com


(END) Dow Jones Newswires

02-01-23 0834ET