TransCanada, Columbia Group a good fit, analyst says

CALGARY A deal for Houston-based natural gas pipeline operator Columbia Pipeline Group Inc. would give TransCanada Corp. access to high-growth U.S. shale plays, an analyst said Thursday.

TransCanada, the Calgary-based pipeline company whose Keystone XL oil pipeline project was rejected late last year, issued a statement confirming it was in talks with a “third party” about a “potential transaction.”

“While we are in discussions regarding a potential transaction with a third party, no agreement has been reached and there is no assurance these discussions will continue or that any transaction will be agreed upon,” TransCanada said.

The company did not provide a name for that third party, but a report in The Wall Street Journal named Columbia Pipeline Group as the target in a deal that could be worth about US$12 billion.

“I think it makes good sense strategically, but everything has a price,” FirstEnergy Capital Corp. analyst Steven Paget said.

Paget said that TransCanada is well-positioned in high-growth shale gas formations in northeastern Alberta and northwestern British Columbia with its existing gas pipeline network. Columbia’s gas pipeline system in Pennsylvania and the Northeastern U.S. would give TransCanada exposure to another high-growth shale gas formation called the Marcellus.

Paget added that Columbia Pipeline could use additional capital to grow its pipeline network, something TransCanada can provide.

Spun out of NiSource Inc. in an initial public offering in 2015, Columbia Pipeline operates a 24,000- kilometre natural gas pipeline network that analysts say would fit well with TransCanada’s existing gas pipelines.

Paget said that TransCanada is, more than anything else, a natural gas midstream company. Though it has oil pipelines and a power business, the company’s 67,300-kilometre natural gas pipeline network made the largest contribution to TransCanada’s earnings last year.

Columbia Pipeline’s New Yorktraded shares jumped as much as 15 per cent on the reports before settling back, ending that day at US$21.43, up 8.5 per cent or US$1.68. TransCanada shares were halted briefly and ended the day at $47.63, down 3.2 per cent or $1.57. Columbia Pipeline has a market capitalization of US$9.4 billion and carries US$3 billion in debt, meaning that a potential transaction could be valued above US$12 billion.

Columbia Pipeline spokesman James Yardley said his company’s policy is not to comment on market rumours.

TransCanada spokesman James Millar also said his company would not comment on “rumours and speculation.”