Kinder Morgan Canada Falls in Trading Debut as Foes Align

2017-05-30 16:03:55

By Scott Deveau and Natalie Obiko Pearson, Bloomberg News

Kinder Morgan Canada Ltd. fell 4.5 percent in its trading debut, a day after two political parties in British Columbia that oppose the company’s pipeline expansion joined forces in a bid to topple the province’s more energy-friendly Liberal government.

Shares in the Canadian unit of Kinder Morgan Inc. fell as much as 7.4 percent Tuesday before paring losses to close at C$16.24 in Toronto. Kinder Morgan Canada raised C$1.75 billion ($1.3 billion) in one of the largest IPOs in the country after its shares were priced last week at C$17 apiece. The company has a market value of C$5.6 billion.

The proceeds from the IPO will be used to help pay for the controversial C$7.4 billion project to nearly triple the capacity of Trans Mountain pipeline, which will allow Canada to increase oil exports to Asia. The expansion may face renewed opposition after the New Democratic Party and the Green Party agreed Monday to form an alliance that would give them enough support to oust the ruling Liberal Party led by Premier  Christy Clark.

Both the NDP and the Green Party oppose the pipeline plan, and said the expansion project played a ‘ critical role’ in the negotiations and will be reflected in their four-year pact. Clark, who has vowed to continue governing after the tight election this month, has endorsed the pipeline, which also won approval from the federal government.

“The decision we took on the Trans Mountain pipeline was based on facts and evidence,” Prime Minister Justin Trudeau said Tuesday in Rome. “Regardless of a change in government in British Columbia, or anywhere, the facts and evidence do not change.”

Boosting Rivals

Any delay in the Trans Mountain expansion would be a negative for Kinder Morgan but might provide a boost for rival Enbridge Inc.’s mainline system, according to David Galison, an analyst with Canaccord Genuity.

“Based on the current production forecasts there may not be enough demand for both the Trans Mountain expansion” and TransCanada Corp.’s Keystone XL project, he said in a note to clients. “New capacity has the potential to put pressure on Enbridge’s mainline system, which is the largest exporter of crude out of Canada.”

Dirk Lever, an analyst at AltaCorp Capital Inc., said it’s not uncommon for pipeline companies to face these sorts of hurdles.

“For Kinder Morgan, they are going to be like that caricature in the cartoon that always has a cloud over their head because of that project, much like TransCanada had one because of Keystone XL,” he said in an interview.

Makes Money

Kinder Morgan Canada is a company that can stand alone and has ongoing business, he said. The Calgary-based company makes money even without the Trans Mountain expansion, he added, noting that it has other pipelines, terminals and facilities in its portfolio.

“Major companies that are trying to build pipelines have cloudy days and sunny days — but more cloudy than sunny,” he said.

Houston-based Kinder Morgan spun out its Canadian unit, whose assets include the Trans Mountain pipeline, after scrapping plans to sell a minority stake in the business.

Kinder Morgan Canada originally planned to sell the shares at between C$19 and C$22 before scaling back to C$17 last week, though it still reached its dollar target by selling more shares.

Construction on the expansion is due to start in September and should be completed by December 2019, according to a regulatory filing. The pipeline’s capacity has been oversubscribed since 2010 and upon completion, 80 percent of its capacity will be under long-term contracts, Kinder Morgan said in the filing.

Kinder Morgan Canada is one of the largest IPOs in Canadian history, and the biggest since Hydro One Ltd. raised C$1.83 billion in October 2015.

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