Canada's Trans Mountain Oil Pipeline May Cost More, Face Delays: Proxy

Reuters, August 8, 2018

Kinder Morgan Canada Ltd documents filed on Tuesday suggest expanding the Trans Mountain pipeline will cost more than current estimates and could take longer than expected to complete. In a report filed with U.S. regulators as part of Kinder Morgan’s sale of the Trans Mountain assets to the Canadian government, the company’s financial adviser contemplated possible capital cost increases of C$1 billion to C$1.9 billion ($766,000 to $1.5 billion), and a delay of up to one year to December 2021.

Kinder Morgan has not provided a cost update since March 2017 despite numerous project delays to the C$7.4 billion project. It said the figures, produced by TD Securities, “should not be taken as forecasts.”

Canada agreed in May to buy the Trans Mountain assets for C$4.5 billion to save the controversial expansion, which will nearly triple capacity on the line from oil-rich Alberta to British Columbia’s coast. The deal is now expected to close late in the third quarter or early in the fourth quarter of 2018, according to a proxy filing with the U.S. Securities and Exchange Commission. It was previously expected to close this summer.

Canada’s Finance Ministry did not immediately reply to a request for comment.

Work on the Trans Mountain expansion has been repeatedly delayed by permitting issues and political opposition. Kinder Morgan halted all non-essential work in April, citing project risks. Canada will fund the resumption of construction work on the expansion under a covered credit facility until the deal closes, the company said.

The proxy documents included a report prepared by TD Securities, the company’s financial adviser, which analyzed asset value based on three possible outcomes for the Trans Mountain expansion project. These scenarios included a final pricetag of C$8.4 billion with on-time delivery of December 2020, a C$9.3 billion pricetag and a delay to December 2021, or an outright cancellation. Both cost estimate scenarios are higher than the current estimate.

The Trans Mountain expansion would nearly triple the capacity of the existing line to 890,000 barrels per day, providing much needed access for Alberta producers to offshore markets. It is opposed by the province of British Columbia, environmental groups and some aboriginal communities.

Kinder Morgan Canada shareholders will vote on the proposed takeover on Aug. 30, the company said in a July 27, 2018 letter to shareholders posted in the proxy.

(Reporting by Julie Gordon in Vancouver; Editing by Tom Brown and Lisa Shumaker)

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