Keystone XL’s surprise go-ahead energizes oilpatch
Pipeline project ‘absolutely critical for our economic future,’ Kenney says
CALGARY TC Energy Corp.’s decision to proceed with the long-delayed Keystone XL pipeline with the help of the Alberta government will allow the oilpatch to hit the ground running when prices recover.
“This is absolutely critical for our economic future now more than ever,” Alberta Premier Jason Kenney told the Financial Post.
On Tuesday, TC Energy, formerly known as TransCanada Corp., said it has decided to build the controversial pipeline with a US$1.1 billion “strategic investment” from the Alberta government.
The province is making a preferred equity investment in the 830,000-barrels-per-day pipeline project that would carry oil from Alberta to the U.S. Gulf Coast, home to the largest concentration of heavy oil refineries in the world.
“We appreciate the ongoing backing of landowners, customers, Indigenous groups and numerous partners in the U.S. and Canada who helped us secure project support and key regulatory approvals as this important energy infrastructure project is poised to put thousands of people to work, generate substantial economic benefits and strengthen the continent’s energy security,” TC Energy president and CEO Russ Girling said in a release Tuesday.
The project, first proposed in 2008, had been staunchly opposed by environmental groups and some farmers along the route, and has been the subject of numerous lawsuits and regulatory delays. Last year, the Nebraska Supreme Court approved the project, removing the last remaining obstacle for the project after a protracted legal battle with a group of opposed landowners in that state.
Girling said that the project “could not have advanced” without the support of both U.S. President Donald Trump and Alberta Premier Jason Kenney.
Apart from a stake, Alberta will provide a $6 billion loan guarantee beginning in 2021, for the project, now expected to cost US$14.4 billion. TC Energy has already spent US$6 billion trying to advance Keystone XL in recent years.
Both Alberta and Ottawa believe the project would provide material benefits to both the province’s revenues and the wider Canadian economy.
“This is good news for our oil and gas industry. It comes at a time when the industry needs it. It means thousands of good, well-paying jobs for the highly skilled workers in the industry needs now and into the future,” federal Natural Resources Minister Seamus O’Regan said in an email.
BMO Capital Market analyst Ben Pham said construction of KXL was “somewhat of a surprise” amid the backdrop of sub-US$20 per barrel of U.S. crude and Canadian production cuts.
But “those are likely transitory impacts and the Alberta Government is effectively bearing the risk of the U.S. election this year while TRP shareholders retain upside to a materially accretive, long-term contracted oil pipeline project,” the analyst said in a note Tuesday.
Chris Bloomer, president and CEO of the Canadian Energy Pipeline Association, said the decision “provides a critical boost of confidence to the Albertan and Canadian economies. It is essential that Canada can contribute to attract major investments like Keystone XL, which will result in billions in government taxes and royalties and improved market access for Canadian resources,”
However, the new project could also strain TC Energy’s credit profile.
Moody’s Investors Service changed the credit outlook of TC Energy and its subsidiaries from stable to negative after the Keystone XL announcement over concerns about the costs of getting the long-delayed, hotly contested pipeline built.
“The negative outlook reflects the very high level of execution risk related to environmental, social and governance factors associated with the Keystone XL pipeline project, which TC Energy has decided to move forward on,” Moody’s vice-president and senior credit officer Gavin MacFarlane said in a release.
“We do not assume that the project will be completed in our current forecasts for the company and will only incorporate cash flow when the project is complete. The decision to move forward is a material credit negative,” MacFarlane wrote.
Financial Post