TransCanada Corp. and its oil-producer customers are prepared to forgo plans for a marine terminal in Quebec to win support for the C$12 billion ($9.5 billion) Energy East oil pipeline, the company’s largest project.
The Calgary-based company is weighing whether to build Energy East with a single marine outlet in New Brunswick, Chief Executive Officer Russ Girling said Wednesday in an interview at Bloomberg’s Toronto office. TransCanada delayed the pipeline’s startup more than a year to 2020 by abandoning plans last week for a terminal facility on the St. Lawrence River because of risks to endangered beluga whales.
Canceling a port in Quebec may allow TransCanada to overcome political and environmental opposition to the project as the company battles to push through regulatory approval for three other North American pipelines. The delays, including to the Keystone XL line that would link Canada’s oil sands to the U.S. Gulf Coast, have crimped TransCanada shares compared with its peers in the past 12 months.
“As an industry, we need to be more cohesive in our thinking of trying to find the project that has the least amount of resistance and is most socially acceptable,” Girling said. That may mean shippers on Energy East only get access to one marine terminal, in New Brunswick, he said. “They’re mature enough in this conversation to know that the most important issue for them is waterborne access.”
Energy East would be North America’s largest crude pipeline, stretching 4,600 kilometers (2,859 miles) from Alberta’s oil sands to New Brunswick. The pipeline would carry as much as 1.1 million barrels of crude a day, which could then be shipped to foreign markets.
TransCanada, Canada’s second-largest pipeline company after Enbridge Inc., has an agreement with closely held Irving Oil Ltd. to build a new deepwater marine terminal in Saint John, New Brunswick.
TransCanada also is discussing alternative sites to its original proposal for a terminal in Cacouna, Quebec, Girling said. Some producers prefer a terminal in the province to allow for smaller ships, lower tolls and better access to certain markets.
Energy East is among four major pipelines proposed by TransCanada with uncertain prospects that are weighing on its stock, according to Rebecca Hazan and Michael Formuziewich, who oversee investments including TransCanada shares at Leon Frazer & Associates in Toronto.
The company is awaiting a U.S. decision on its Keystone XL pipeline, first proposed in 2008, and has two prospective conduits to Canada’s Pacific Coast that depend on energy companies moving ahead with liquefied natural gas export terminals.
“There’s a lot of regulatory uncertainty revolving around these four megaprojects,” Hazan said.
TransCanada plans annual dividend growth of at least 8 percent through 2017 without any of the megaprojects, compared with projected dividend growth of 14 to 16 percent through 2018 at Calgary-based Enbridge, according to company documents. Enbridge shares have gained 24 percent in the past year, compared with a 8.6 percent rise for TransCanada.
Over the same period, Canada’s S&P/TSX Energy Index has fallen 15 percent, as energy producer stocks suffer from the collapse of oil prices to less than half their peak last June. TransCanada rose 1 percent to C$55.22 at the close in Toronto.
“The better the dividend and the dividend growth, the higher we value the company,” said Steven Paget, an analyst at FirstEnergy Capital Corp. in Calgary who recommends investors buy Enbridge shares while holding TransCanada stock.
Enbridge, which has been able to expand its existing oil pipeline system to grow, has a 74 percent buy recommendation from analysts, while 47 percent of analysts following TransCanada recommend investors buy the stock, according to data compiled by Bloomberg.
“Enbridge is driving forward with a big plan that has a near-term dividend growth focus,” Paget said. “TransCanada, and you could argue there are very valid reasons, is holding its dividend growth in the single-digit range, if it does not get projects like Keystone XL, Energy East and the big LNG projects approved.”
Poised to Boost
TransCanada is poised to boost its investor payout beyond current plans if it gets even one megaproject built, Girling said.
“We have the optionality of four large projects, which I would say aren’t attributing much value in our stock today,” Girling said.
Leon Frazer’s Hazan, a native of Quebec, is banking on Energy East eventually winning support in the province as communities are set to reap economic benefits from revenues collected from TransCanada as its pipeline crosses their land. In the meantime, she’s satisfied with the company’s current dividend plans. TransCanada’s indicated gross yield is 3.8 percent.
“They pay a yield, they’re growing it and 8 percent is OK with us,” Hazan said. “Then there’s the potential for upside, should any of these megaprojects go through, and our mentality is that at least some of them will go through, eventually.”