Kinder Morgan shares up 5% on Ottawa financing pledge

By Peter Kennedy

The Canadian government is prepared to back Kinder Morgan Canada‘s [KML-TSX] stalled Trans Mountain pipeline expansion project by indemnifying the project from any financial loss.

Finance Minister Bill Morneau said the offer is open not just to Kinder Morgan, but any company that wants to build the pipeline if Kinder Morgan opts to back out.

“If Kinder Morgan isn’t interested in building the project, we think plenty of investors would be interesting in taking on this project, especially knowing that the federal government believes it is in the best interest of Canadians and is willing to provide indemnity to make sure that gets done,” Morneau said.

The pledge from Morneau is a response to the Kinder Morgan announcement on April 8, 2018 that it is suspending all non-essential activities and related spending on the Trans-Mountain Expansion Project due to continued opposition in British Columbia and a lack of clarity about the way ahead.

Kinder Morgan said it will consult with various stakeholders in an effort to reach agreements by May 31, 2018 that may allow the project to proceed.

The original Trans Mountain Pipeline was built in 1953 and continues to operate today. The proposed expansion is essentially a twinning of the existing 1,150-km pipeline between Edmonton, Alberta and Burnaby, British Columbia.

Expected to cost approximately $7.4 billion, it will create a pipeline system with a nominal capacity rising from 300,000 barrels per day to 890,000 barrels per day.

Morneau said that by pledging financial support to the eventual builder, the federal government is attempting to resolve the dispute between Alberta and British Columbia over the proposed expansion.

“It’s not reasonable to expect a private sector actor to deal with disputes between governments,” he said. “We’ve found a way, we believe, to deal with that political risk and should Kinder Morgan not want to move forward with that approach to dealing with it, we think there’s other private sector actors who would be willing to move forward.”

However, Morneau would not say how much the government is willing to put up to ensure that the project gets built.

Kinder Morgan shares were up 2.5% or $0.42 to $17.16 in afternoon trading Wednesday May 16 after rising as much as 5% earlier in the session.

Kinder Morgan Chairman and CEO Steve Kean issued the following short statement in response to Morneau’s promise.

“We acknowledge the comments by Minister Morneau this morning and appreciate his acknowledgement of the uncertainty created by the B.C. Government’s stated intention to ‘do whatever it takes to stop the Trans Mountain Expansion Project’ and the ‘exceptional political risk’ this federally  and provincially-approved project continues to face,” Kean said.

“We appreciate his recognition that a private company cannot resolve differences between governments,” he said.

Kean went on to state that Kinder Morgan remains steadfast in its previously stated principle: clarity on the path forward, particularly with the ability to construct through British Columbia, and ensuring adequate protection for our KML shareholders.

“While discussions are ongoing, we are not yet in alignment and will not negotiate in public,” Kean said. “As we have stated, the May 31^st deadline for these discussions is necessitated by approaching construction windows, the time required to mobilize contractors, and the need to commit significant new materials orders, among many other imperatives associated with such a large project.”

British Columbia has filed a reference case with the province’s top court to determine if it has jurisdiction to limit expanded shipments of heavy oil through the province.

British Columbia Premier John Horgan has said clarity is needed to ensure the B.C. government protects its coastline. Critics have argued that the move is a tactic to delay or block the project by creating uncertainty.

Canadian Senator Doug Black recently underlined his view of the importance of Trans Mountain and pipelines in general to the Canadian economy, noting that:

• Pipeline operations added $11.5 billion to Canada’s gross domestic product in 2015, sustaining 34,000 full-time jobs.
• Twinning the Trans Mountain Pipeline will inject $7.4 billion into Canada’s economy through project spending and help our country export these resources by moving oil to the West Coast for marine transport to markets around the world.
• Combined government revenue impact for construction and the first 20 years of expanded operations is $46.7 billion.

By recently adopting the Trans Mountain Pipeline Project Act, the Canadian Senate said it is demonstrating its confidence in the National Energy Board’s rigorous review and approval of the project.