Canada to miss pipeline resale deadline
Deal likely to be finalized without Kinder Morgan’s aid later this year
OTTAWA— There are about a dozen parties interested in the Trans Mountain oil pipeline, but the Canadian government won’t reach a deal to flip it before a marketing deadline with Kinder Morgan Inc. closes Sunday, according to sources familiar with the situation.
The government’s $4.5-billion purchase of the pipeline and ex- pansion project included a sixweek window to July 22 to comarket the pipeline with an eye for selling it to a third party. A quick sale would have effectively allowed the government to substitute in another buyer for the current deal to be finalized.
That deadline Sunday is set to pass. The deal will be finalized with the government as the new owner, and it will seek a new buyer without Kinder Morgan’s help, amid fears of legal and political delays.
The Trans Mountain sale is scheduled to close in either the late third quarter or early fourth quarter, as the project faces continued opposition from British Columbia’s premier and awaits a key court ruling. Kinder Morgan’s Canadian unit didn’t respond to a request for comment. Finance Minister Bill Morneau spokesperson Daniel Lauzon declined to directly say if there would be a sale to a third party by July 22, but said the government won’t hold the pipeline forever.
A regulatory document filed by Kinder Morgan this month offered a glimpse of the highstakes negotiations that led to the pipeline essentially being nationalized as Kinder balked at the political landscape. On March 6 — a month before it suspended work — the com- pany asked for a financial backstop arrangement. The government expressed willingness to provide a backstop “subject to numerous conditions,” while the company “emphasized the urgency of the matter.”
Kinder Morgan then floated the idea of a 100-per-cent sale, and on April 30, the company proposed a price of $6.5 billion for the assets.
The government responded on May 8 by presenting two alternative proposals. The first was for the company to proceed with construction, relying on a government backstop. The second was to bundle the assets and try to find a buyer. If a sale couldn’t be arranged, the government would buy it for $2.3 billion plus an unspecified share of $1.1 billion in capital spending so far.
The next day, the board unanimously rejected the proposal. On May 22, the government offered $3.85 billion and suggested the deal close in December. The company thought that would be too long. On May 23, the company countered at $4.5 billion, which after capital gains taxes would be $4.2 billion. The government agreed on certain conditions, including the six-week marketing window that elapses July 22.