National Post (National Edition)
Oilpatch fears investor exodus as Trans Mountain pipeline stalls.
OILPATCH DEMANDS ACTION AS … … KINDER MORGAN LOOKS ELSEWHERE
CALGARY• Major Canadian oil companies fear an investor exodus as
Kinder Morgan Inc. signals there are less risky pipeline projects it can invest in than the troubled $7.4-billion Trans Mountain project through British Columbia.
Kinder Morgan announced late Sunday it would suspend all non-essential work on the pipeline until the federal government intervenes in the spat that has pit B.C. against Alberta and Saskatchewan. The company said it needs certainty the project will not face endless delays from B.C. in order to proceed and gave an end-of-May deadline.
The announcement immediately sent shockwaves through the domestic oilpatch.
“If we don’t understand that we’re in crisis mode now, we’ve got to get there pretty quickly,” Canadian Energy Pipeline Association president and CEO Chris Bloomer said Monday.
Bloomer also repeated warnings from the Royal Bank of Canada last week that capital is fleeing Canada “in real time,” and said reputational damage from this pipeline fight will only exacerbate the situation.
“The bottom line on the energy sector is that it relies on capital. These are huge projects that rely on being able to source, at a reasonable cost, capital. These companies need to have shareholders, they need to have lenders,” Bloomer said. Kinder Morgan Canada Ltd.’s shares fell 13 per cent on the Toronto Stock Exchange Monday on the news its parent company was pausing spending on the project and threatening to redeploy capital elsewhere. The S&P TSX Capped Energy Index fell 0.3 per cent on the day, taking its year-to-date decline to 5.4 per cent.
“We expect to continue investing but it has become clear that this particular investment may become untenable for a private party to undertake,” Kinder Morgan Inc. president and CEO Steve Kean said on a conference call.
Kean said $1.1 billion had been spent on the $7.4-billion project to expand the delivery of crude oil from Alberta to the B.C. coast so far. The company had previously said it was spending $30 million per month, but will now scale that back.
“We’re going into a very high spend. We don’t want to kick the can down the road until we have another $2 billion in the project,” Kean said.
Energy companies and industry groups warned the delays are hurting local companies.
“The project is critical to Canada and the future of its oil and gas industry, which contributes billions of dollars to the national economy each year and is one of the country’s single largest job creators,” Cenovus
Energy Inc. president and CEO Alex Pourbaix said in a release.
“If the rule of law is not upheld and this project is allowed to fail, it will have a chilling effect on investment not just in British Columbia, but across the entire country,” he said.
In a bid to help soothe investor worries, Alberta Premier Rachel Notley announced late Sunday that her province would be willing to invest in the pipeline.
“Alberta is prepared to do whatever it takes to get this pipeline built,” Notley said Monday, adding the province would be a “very motivated” investor.
Kinder Morgan’s Kean said his company welcomed those assurances on Monday’s call and said there would be talks between the province and the company soon.
Oil and gas executives also praised Notley’s willingness to directly invest to see the project through, adding there’s a business case for Alberta. Still, many executives called on Ottawa to take decisive action quickly.
“Now is the time for them to exercise their authority,” Canadian Association of Petroleum Producers president and CEO Tim McMillan said, adding that Ottawa needs to provide some assurance to Kinder Morgan the way Notley has.