The Canadian government has agreed to purchase the Trans Mountain Pipeline system and expansion project for $4.5 billion (CAD). Kinder Morgan Inc. announced the deal May 29, revealing that the Kinder Morgan Canada Ltd. board of directors had OK’d the sale and agreed to work with the government to seek a third-party buyer pipeline system and expansion through July 22.
As part of the agreement, the Canadian government has agreed to fund the resumption of Trans Mountain expansion project planning and construction work by guaranteeing its advances under a separate federal government recourse credit facility until the transaction closes. The parties expect to close the transaction late in the third quarter or early in the fourth quarter of 2018, subject to Kinder Morgan Canada shareholder and applicable regulatory approvals.
“We are pleased that [Kinder Morgan Canada] and the government were able to reach agreement on a transaction that benefits the people of Canada, [Trans Mountain expansion] shippers and both [Kinder Morgan Inc.] and [Kinder Morgan Canada] shareholders,” said Steve Kean, Kinder Morgan Inc. CEO and Kinder Morgan Canada chairman and CEO. “The outcome reached represents the best opportunity to complete [the Trans Mountain expansion]and thereby realize the great economic benefits promised by that project.”
Kean added that despite losing out on any earnings associated with the Trans Mountain system, the company still expects to exceed its 2018 earnings targets.
The Canadian Association of Petroleum Producers (CAPP) applauded the deal, calling the government’s acquisition of the Trans Mountain system and expansion project a long-term commitment in the future of the country’s oil and natural gas industry. In a May 29 statement, CAPP said the project will “enable the creation of jobs and prosperity for a new generation of Canadians.”
CAPP said it was pleased the construction of this project will get underway – demonstrating confidence in Canada’s energy sector and ensuring full market value for the country’s natural resources. The government’s political and financial backing guarantees construction the pipeline will resume and provides industry the assurance it has been seeking.
“We are pleased the pipeline will be built. It has full regulatory, legislative, financial and political backing of the highest level of government, and will ultimately be returned to the private sector where it belongs,” said CAPP president and CEO Tim McMillan.
Although the federal government’s commitment is a step forward, this project was always economically viable for private-sector investment based on the long-term returns it would have for Canada, CAPP said. These are exceptional circumstances and should not be considered the norm.
“Building the Trans Mountain expansion is the first step to making Canada competitive for investment in the global energy market,” McMillan said. “It will begin to reduce our reliance on one customer and enable Canadians to get a fairer price for their natural resources.”
Now that this project has the full backing of the highest level of government in the country, CAPP expects Ottawa to be committed to overcome any legal, political, or activist barriers that may remain.
The British Columbia government’s dispute with the Trans Mountain expansion project was about more than just one pipeline, one industry or one province. Instead, it created mounting political uncertainty and repercussions for many industries across Canada seeking government approvals and global investors. According to the CAPP statement, if the government wants this to be a success, it must ensure the project is managed responsibly to prevent cost overruns due to continued opposition from the B.C. government and organized activists.
The Trans Mountain expansion project is critical infrastructure needed to move Canadian energy to world markets and restore investor confidence in Canada’s economy and political system, McMillan added. It signals Canada is open to business and energy trade with international investors.