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Industry reaction mixed over Trans Mountain pipeline buyout

Click to play video: 'Albertans’ reaction to Trans Mountain purchase mixed' Albertans’ reaction to Trans Mountain purchase mixed
WATCH: While many Albertans are happy the Trans Mountain pipeline project appears to be moving forward, others aren't thrilled taxpayers are on the hook. Lisa MacGregor reports – May 29, 2018

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.

READ MORE: Ottawa inks deal to buy Trans Mountain pipeline project for $4.5B

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.

WATCH: ‘This is entirely due to the actions of Premier Horgan’: Calgary Mayor Naheed Nenshi

Click to play video: '‘This is entirely due to the actions of Premier Horgan’: Calgary Mayor Naheed Nenshi' ‘This is entirely due to the actions of Premier Horgan’: Calgary Mayor Naheed Nenshi
‘This is entirely due to the actions of Premier Horgan’: Calgary Mayor Naheed Nenshi – May 29, 2018

READ MORE: Here is everything you need to know about Ottawa’s plan to (maybe) buy the Kinder Morgan pipeline

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.

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

WATCH: The federal Liberal government plans to spend $4.5 billion to buy the Trans Mountain pipeline and all of Kinder Morgan Canada’s core assets, Finance Minister Bill Morneau announced Tuesday morning.

Click to play video: 'Federal government buys Trans Mountain pipeline for $4.5 billion' Federal government buys Trans Mountain pipeline for $4.5 billion
Federal government buys Trans Mountain pipeline for $4.5 billion – May 29, 2018

LISTEN: Canadian Energy Pipeline Association reacts to government purchase of Trans Mountain

“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.

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“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.

READ MORE: Edmonton Metro mayors pledge support for Trans Mountain pipeline expansion project

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.

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“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.

LISTEN: How will the market react to the pipeline purchase?

READ MORE: Trans Mountain pipeline project purchase ‘major step forward’: Rachel Notley

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.

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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.

READ MORE: No suitors emerge for Trans Mountain pipeline stake as Kinder Morgan deadline looms

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.

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“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.

LISTEN: BC premier reacts to federal government pipeline purchase

“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.
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“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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