Trans Mountain pipeline construction to restart, but prospective buyers stay on sidelines

CALGARY – Construction is poised to restart on the Trans Mountain pipeline expansion but even as activity ramps up, at least one prospective buyer — Pembina Pipeline Corp., fresh off its purchase of Kinder Morgan Inc.’s remaining Canadian business — said it’s not interested for now in “the noise” of the controversial pipeline.

Trans Mountain Corp. announced Wednesday that construction would re-start imminently in multiple communities along the pipeline route and the project would be in service, delivering 590,000 barrels of oil per day from Alberta to the West Coast, by the middle of 2022.

The company said that by the end of the year, 4,200 people would be working on the pipeline project.

“Clearly this project has been subjected to numerous delays and setbacks over the past several years,” Trans Mountain president and CEO Ian Anderson said in a release. “With today’s announcement on the commencement of construction, I firmly believe that we are finally able to start delivering the significant national and regional benefits we have always committed to.”

The federal government purchased the Trans Mountain pipeline and expansion project to twin the line in 2018 from Houston-based Kinder Morgan Inc. for $4.5 billion and has been looking for a buyer for the pipeline network since that time.

Trans Mountain, now a Crown corporation, did not provide an updated cost estimate for the project.

Natural Resources Minister Amarjeet Sohi said at a press conference in an Edmonton suburb Wednesday the federal government is “engaging in a process with Indigenous communities” on selling an equity stake in Trans Mountain to First Nations groups.

Still, negotiations between the federal government and Indigenous groups haven’t reached a point where bids are being tabled.

“There is still critical information that needs to be determined before we can move forward with a bid but this is a positive step in the right direction,” Chief Tony Alexis said in an email Wednesday. Alexis is the co-chair of the Iron Coalition, which has been authorized to negotiate an equity stake in the pipeline on behalf of First Nations in Alberta.

Representatives from Project Reconciliation, another Indigenous-led group interested in buying the pipeline, didn’t respond to a request for comment.

Analysts said Wednesday the market had already anticipated construction restarting on the project at this time and a 2022 in-service date, so the announcement looked more like a pre-election update on the project.

“I don’t believe that any midstream company would be willing to take on that added level of risk outside of the overall operating or construction risk,” Canaccord Genuity analyst David Galison said.

Meanwhile, Pembina Pipeline Corp. is now considered one of the more likely prospective buyers of TMX after the company said it would buy Kinder Morgan’s Canadian business and the Cochin pipeline from the Houston-based midstream company for $4.35 billion.

Pembina president and CEO Mick Dilger said during an investor conference call that given the business it had just acquired, the company would be “uniquely qualified” to buy and integrate the Trans Mountain system into its business, but expressed its reticence to spend money on a project that still faces significant obstacles in the form of court challenges and environmentalist opposition.

“TMX would clearly fit into that mandate but we cannot take on the noise with something like that,” Dilger said on a conference call Wednesday, adding the project in its current state remains too risky.

… this is the kind of asset you want to have that can pay your dividend through any kind of cycle.

Pembina CEO Mick Dilger

“When you’re dealing with ongoing federal/provincial disputes, that’s outside of their control and I can’t imagine any company would be willing to take on that risk without substantial upside from it,” Galison said, referring to the ongoing legal reference case the British Columbia government has launched to try to stymie the project.

Pembina’s deal to acquire Kinder Morgan Canada’s assets include oil storage tanks, oil-by-rail terminals, a cargo terminal in Vancouver and the Cochin pipeline, and is expected to close next year.

“It’s good now, it could be very good in a couple years,” Dilger told analysts.

Pembina has spent billions buying assets in recent years, including the $9.7-billion acquisition of Veresen Inc. in 2017. It is also building a $4.5 billion propane-to-plastics petrochemical project in Alberta with joint-venture partner Petrochemical Industries Company of Kuwait.

Wednesday’s deal with Kinder Morgan will have a “modestly positive impact on Pembina’s business risk profile” but a “modestly negative impact” on its credit metrics because of the incremental debt, analysts at debt ratings agency DBRS said in a release.

Analysts said the purchase of Kinder Morgan’s Canadian oil storage tanks in Edmonton, in particular, were an example of Pembina’s prudent risk management.

“This is going to be a rock through any market,” Dilger said. “So when you start to see yield curves invert and stuff like that, this is the kind of asset you want to have that can pay your dividend through any kind of cycle.”

Shares in Pembina traded down just under 1 per cent on Wednesday to $48.99 each, though analysts said that was more of a reflection of the fact the deal for Kinder Morgan Canada was a share-based transaction.

“We believe the acquisition further strengthens the quality of the company’s integrated value chain, improves the quality of the company’s cash flows and adds a new compelling business line with the Edmonton storage business,” Raymond James analyst Chris Cox said in a research note.

[Top photo: Construction is to restart imminently in multiple communities along the pipeline route and the project will deliver 590,000 barrels of oil per day by mid-2022.Candace Elliott/Reuters]