Canada to buy Kinder's Trans Mountain pipeline for $3.5 billion

By Josh Wingrove and Greg Quinn on 5/29/2018

OTTAWA (Bloomberg) -- Canada will buy Kinder Morgan Canada Ltd.’s Trans Mountain oil pipeline and its controversial expansion project for C$4.5 billion ($3.5 billion) in a bid to ensure it gets built amid fierce opposition.

Finance Minister Bill Morneau and Natural Resources Minister Jim Carr announced the plan Tuesday in Ottawa. “It must be built and it will be built,” Morneau said. The deal, which includes the expansion, related pipeline and terminal assets, is expected to close in August. Construction will continue through the 2018 season, and the federal government will transfer it to one or more new owners when “appropriate.”

Buying the pipeline outright had become increasingly likely after Prime Minister Justin Trudeau first pledged only to backstop it. “We are going to get that pipeline built,” Trudeau said Tuesday morning as he headed into a meeting with his cabinet.

The purchase marks a stunning development for Trudeau’s government -- effectively nationalizing the country’s highest-profile infrastructure project until an operator can be found. The project has been beset by legal uncertainty and rising protests from environmental groups and the province of British Columbia. It will be a key test of Trudeau’s bid to balance the environment and the economy by backing the C$7.4 billion pipeline expansion while pushing a national carbon price to reduce greenhouse gas emissions.

Expects to sell

Canada first offered earlier this month to indemnify the expansion project before making Tuesday’s announcement. The plan includes the existing pipeline that’s been in operation since 1953.

The plan announced Tuesday has several stages -- construction will continue this year with a Federal loan guarantee as the deal is finalized; the government will look for a new owner or owners to transfer the project to; and then “indemnify” the owner against certain costs.

Calgary-based Kinder Morgan Canada, a unit of the Houston-based parent, was little changed at C$16.59 in Toronto trading Monday, for a market value of C$5.76 billion. Shares were halted on Tuesday pending the announcement, and the company was due to hold a call after Morneau announcement.

The two sides had been in talks since the company set a May 31 deadline for the government to give certainty in the face of opposition from British Columbia, which is concerned about increased tanker traffic and possible oil spills along the Pacific coast. Trudeau pledges regularly that the pipeline will be built.

The Trans Mountain expansion would almost triple capacity to 890,000 bbl of oil on a line running from Alberta to a terminal near Vancouver. The 980-km (600-mi) expansion is seen by the oil industry as a crucial link to Asian markets, allowing producers to diversify away from the U.S., which takes the vast majority of Canadian oil exports.

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