Oil Shares Rally Ignore Keystone Delay: Corporate Canada

Keystone XL watchers take note: Canada’s oil industry is moving on.

While TransCanada Corp. (TRP) had its biggest tumble in close to five years yesterday after the U.S. said it would delay a decision on the company’s $5.4 billion pipeline to the Gulf Coast, Canadian oil stocks barely flinched and are off to the best start to the year since 2006.

After hold-ups from President Barack Obama, protesters chaining themselves outside the White House to highlight the environmental risks of oil-sands crude and legal skirmishes in Nebraska, producers from Imperial Oil Ltd. (IMO) to Cenovus Energy Inc. (CVE) are finding other ways to get their product to market.

“If Keystone gets approved, then great, but the system is working fine without it,” said Robert Mark, director of research at MacDougall, MacDougall & MacTier Inc., which oversees about C$5 billion ($4.5 billion) in assets. “There’s a lot of Keystone fatigue out there.”

Investors have become used to Keystone delays. The April 18 announcement by the U.S. State Department, which is responsible for reviewing whether Calgary-based TransCanada’s proposal is in the nation’s interest because the line would cross an international border, will likely allow Obama to defer a decision on Keystone until after congressional elections in November.

Photographer: Brett Gundlock/Bloomberg

The Hardisty tank farm, which includes the TransCanada Corp. Hardisty Terminal 1, stands at dusk in Hardisty, Alberta. TransCanada has C$38 billion worth of secured projects, including two natural gas lines to supply proposed liquefied natural gas terminals in British Columbia as well as a planned $12 billion oil conduit to Canada’s Atlantic coast called Energy East. Close

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Photographer: Brett Gundlock/Bloomberg

The Hardisty tank farm, which includes the TransCanada Corp. Hardisty Terminal 1, stands at dusk in Hardisty, Alberta. TransCanada has C$38 billion worth of secured projects, including two natural gas lines to supply proposed liquefied natural gas terminals in British Columbia as well as a planned $12 billion oil conduit to Canada’s Atlantic coast called Energy East.

Nebraska Questions

The State Department is holding off on a recommendation until legal questions about the way the route was approved through Nebraska are resolved. The Nebraska court is reviewing a case brought by three landowners along the proposed route who challenged a state law that gave Governor Dave Heineman the power to approve the project.

TransCanada shares declined 3.7 percent yesterday in Toronto, the most since June 2009, and rose 1.3 percent to C$50.04 at the close today.

“Another delay is inexplicable,” TransCanada Chief Executive Officer Russ Girling said in a statement on the company’s website yesterday. “North American oil production is up dramatically and will continue to rise. That means without Keystone more oil will be shipped by rail and by barge.”

Imperial Oil Ltd. gained yesterday in Toronto, while Suncor Energy (SU) Inc. fell 0.1 and Cenovus declined 0.3 percent.

Canada’s Standard & Poor’s/TSX Energy Index has risen 14 percent this year, the best start since 2006 and outpacing a 13 percent rise for the S&P Oil & Gas Exploration and Production Select Industry Index.

Canadians Rise

The Canadian dollar, which has declined 3.7 percent against the U.S. dollar this year, as well as uncertainty about global oil supplies following the political turmoil in Ukraine have helped Canadian crude stocks this year, investors said. West Texas Intermediate crude rose above $104 a barrel to near the highest level of 2014 yesterday while the difference between U.S. and Canadian crude is holding steady about $18.50, up from a low of $42 in November.

“Nobody is buying or selling energy stocks at the moment based on macro pipeline developments,” said Matt Skipp, chief investment officer at Sw8 Asset Management Inc. in Toronto, which manages about C$36 million. “The recent strength can be attributed to people looking past the infrastructure problems in Canada, whether it’s pipelines to the coast or to the south.”

Keystone XL, designed to connect Alberta’s oil sands to Gulf Coast refineries with 1,179 miles (1,897 kilometers) of pipe, was first proposed in 2008 and TransCanada originally scheduled startup of the line in 2012. The company plans to carry 830,000 barrels a day with the pipeline through the U.S. heartland.

Hot Potato

TransCanada has C$38 billion worth of secured projects, including two natural gas lines to supply proposed liquefied natural gas terminals in British Columbia as well as a planned $12 billion oil conduit to Canada’s Atlantic coast called Energy East.

Lower prices for Canadian crude are costing the economy about C$50 million a day, according to the Canadian Chamber of Commerce.

Delays in the Keystone XL approval process still have an effect on energy companies, especially those that produce heavy bitumen oil, said John Goldsmith, a Toronto-based fund manager who helps manage about C$5.6 billion at Montrusco Bolton Investment Inc.

“The whole idea with XL is to be able to get close to 800,000 barrels a day of this bitumen, of the very heavy oil, down to refining markets that have ample capacity,” he said by phone. “Right now basically it’s a political hot potato.”

Finding Alternatives

Companies especially hit by the delay include MEG Energy Corp. (MEG) and Canadian Natural Resources Ltd. (CNQ), Goldsmith said.

MEG Energy aims to have “all the options” available to ship its oil, including rail, pipelines and barges, spokesman Brad Bellows, said in an interview. While the company isn’t a committed shipper on Keystone XL, it is supportive of the project, he said.

Canadian Natural declined to comment.

MEG Energy rose 0.1 percent yesterday in Toronto and Canadian Natural dropped 0.6 percent.

Imperial, while still considering Keystone XL as a way to ship its crude, has already committed to be a shipper on Kinder Morgan Inc. (KMI)’s Trans Mountain pipeline expansion to Vancouver and is considering space on Enbridge Inc. (ENB)’s Northern Gateway line and Gulf Coast access routes, spokesman Pius Rolheiser, said in an e-mail.

Sufficient Options

Calgary-based Imperial also is building a rail terminal near Edmonton with a potential capacity of as much as 250,000 barrels a day, he said.

Cenovus is taking a “portfolio approach” to ensure the company has sufficient options to transport its rising crude volumes, according to Brett Harris, a company spokesman. The Calgary-based producer supports pipeline proposals and has committed to ship oil on both Keystone XL and Enbridge’s Flanagan South project as well as expanding its rail capacity.

Critics of Keystone argue it’s a risk to the climate because it would encourage production of Alberta’s oil sands, which release more greenhouse gases than the production of more conventional types of crude. Former hedge-fund manager Tom Steyer’s anti-Keystone NextGen Climate Action group may spend $100 million this year backing candidates critical of the pipeline.

“We continue to believe that if the Keystone decision is based on facts and science, the project will eventually be approved,” Harris said.

To contact the reporter on this story: Jeremy van Loon in Calgary at jvanloon@bloomberg.net

To contact the editors responsible for this story: Susan Warren at susanwarren@bloomberg.net; David Scanlan at dscanlan@bloomberg.net Jacqueline Thorpe, Steven Frank

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