Trans Mountain seen delivering better prices ‘for years’
Calgary-based Meg Energy Corp. expects Canada’s oil producers to get better prices “for years” as the industry starts using the expanded Trans Mountain pipeline that officially opened on May 1.
But the company predicts the pipeline will meet its capacity within five years and it doesn’t expect to see another pipeline built anytime soon.
“With (TMX) now complete, we anticipate … differentials will remain narrow for years while Canadian egress remains unconstrained,” vice-president of marketing Erik Alson said on a conference call on Tuesday. “As an industry, there is a history of filling the available egress and I think that will happen again over time. There are various estimates out there for when that could occur — some as recent as two years, others within five or six. Our thinking is closer to the outer end of that timeframe.”
Meg Energy chief executive Darlene Gates in a statement said the Trans Mountain expansion would reduce pricing differential volatility and improve the company’s gross profit per barrel — or netbacks.
Owned by the federal government’s Trans Mountain Corp. , the 1,150-kilometre pipeline is part of an expansion project that twins an existing line built in 1953 connecting Alberta and British Columbia. Together, the two pipelines are expected to deliver about 890,000 barrels of oil per day.
Other oil producers have also said they expect the pipeline to improve conditions for Canadian companies.
Cenovus Energy Inc. on May 1 said it has its eyes set on a “pretty vast market,” and added that Canada needs to build more infrastructure to tackle its decreasing productivity. Canadian Natural Resources Ltd. on May 2 said the pipeline creates additional exporting opportunities on the west coast, both by land and by water.
Alson said Meg Energy is looking to boost its existing capabilities by partnering with a global operator that has “extensive shipping capabilities.”
Meg Energy earned $98 million in its first quarter ending March 31, up from $81 million during the same quarter last year, according to its results released on May 6, but revenues dropped to $1.4 billion from $1.5 billion a year earlier. Diluted earnings per share were 36 cents, up from 28 cents. Bitumen production averaged about 104,000 barrels per day during the quarter.
The idea to build the new pipeline was first proposed about 12 years ago by Houston-based Kinder Morgan Inc. The project went through an ownership change, billions of dollars’ worth of cost revisions and several protests from environmentalists before completion.
The cost to build the new pipeline was initially estimated in 2017 to be around $7.4 billion. Since then, the cost has ballooned to about $34 billion, leading to some criticism from the industry.
The pandemic and natural disasters such as floods and fires played roles in increasing the timeline and cost of the project, but a key reason behind the revisions was how the company decided to construct the pipeline compared to the originally conceived approach, according to Mark Maki, Trans Mountain’s chief financial and strategy officer.
“The really important thing with any long linear infrastructure here in Canada is recognizing the people that were here first and they have to be part of the economic equation,” he said last month. “That’s a big thing with this project. Engagement with Indigenous nations, Indigenous contractors, partnerships and, ultimately, Indigenous ownerships.
Maki expects the Trans Mountain experience to be the “new normal” for largescale linear infrastructure projects in Canada.