Deal by Kinder Morgan Canada to sell Trans Mountain welcomed with misgivings

The Canadian pipeline industry welcomed news Tuesday that the Trans Mountain expansion pipeline is more likely to be built, but expressed grave misgivings over the federal government’s decision to buy both the expansion and the existing line in order to achieve that goal.

Canada needs projects like the expansion designed to triple Trans Mountain’s capacity to move crude oil and refined products from the Alberta oilsands and Edmonton refining complex to the West Coast, said Chris Bloomer, CEO of the Canadian Energy Pipeline Association.

Trans Mountain, Kinder Morgran, Bill Morneau
Vancouver protests in late 2017 epitomized the controversy surrounding the pipeline. Photo by William Chen via Wkimedia Commons.

But he added in a statement that the association is “deeply concerned” that the government felt it had to purchase the project “to assert federal jurisdiction” and allow it to be built.

“(The expansion project) went through extraordinary reviews and was approved by the government of Canada 18 months ago,” he said.

“The project has always been in the national interest. CEPA is concerned about the implications of the government’s financial intervention for future transmission pipeline projects. We do not believe that this outcome will instill investor confidence in Canada.”

Kinder Morgan Canada Ltd.’s shares lurched higher, then fell, after the federal government announced early Tuesday it would buy its Trans Mountain pipeline assets for $4.5 billion.

The stock rose to $18 in early trading on the Toronto Stock Exchange but fell back to $16.58, down a penny, by 11:40 a.m. ET. The company’s stock had been halted prior to the announcement.

The Canadian company estimated the deal is worth about $12 per restricted voting share, after capital gains tax. It expects its approximately 30 per cent share of after-tax proceeds to be about $1.25 billion.

“This is a great day for Canada, for our customers, for our employees,” Kinder Morgan Canada CEO Steve Kean said on a morning conference call. “We’ve agreed to a fair price for our shareholders and found a way forward for this national interest project.”

He said his company had agreed to work with the government to try to find a third party to buy the assets by July 22. Kean is also CEO of Kinder Morgan, Inc., the Houston-based firm that owns 70 per cent of the Canadian firm.

Kinder Morgan Canada will continue to hold an integrated network of crude tank storage and rail terminals in Alberta, the company said. It will also own a terminal in Vancouver and the Cochin Pipeline system which transports light condensate from the United States to Fort Saskatchewan, just northeast of Edmonton.

The company had ceased all non-essential spending on the Trans Mountain expansion in April, vowing to cancel it unless it received assurances it can proceed without delays and without undue risk to shareholders by a deadline of this Thursday.

After the federal government’s announcement, Kean said the work would be restarted soon, with the government funding construction. The sale is expected to close in the second half of the year.

News that the federal government is buying the pipeline surprised Martin Tallett, president of Massachusetts-based oil market research firm EnSys Energy.

“It’s really quite a turnup for the books for the Canadian government to buy itself a pipeline,” he said.

“If you think about the dozens of pipelines that exist for crude oil, natural gas liquids, natural gas itself, petroleum products, all throughout the U.S. and Canada — and we track this stuff — I’m not aware of a single one that’s owned by any government entity … not on this scale.”

He said the failure of the proposed Northern Gateway pipeline to the West Coast and Energy East pipeline project to the East Coast means Canada remains highly dependent on the U.S. market for exports. He said the Trans Mountain expansion is needed for increased access to other markets.

“We’ve always reckoned that the Trans Mountain expansion was logical in terms of, if you build the pipeline, the volumes will flow through it. I think that’s been reinforced by the fact that Kinder Morgan was able to build up through different open seasons to a high level of commitment (from shippers),” he said.

“There will be quite a lot of that crude going to northeast Asia, which is quite a short distance by sea.”

He said the only major government-owned pipelines he knows of in the world exist in countries like China, Saudi Arabia or Kuwait, where the pipeline is operated by a subsidiary of a national oil company.

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