TransCanada told to continue expansion
Oil companies want pipeline built on schedule
Carrie Tait, Financial Post
February 04, 2009
TransCanada Corp., after suggesting in October that it would be willing to delay construction on a pipeline expansion project if its shippers so desired because of the tanking credit and energy markets, immediately took a little heat from its customers.
In their eyes, TransCanada was making a mistake. The oil shippers begged TransCanada to forge ahead -- demonstrating that business at the Canadian pipeline and power giant is proceeding smoothly even as others falter.
While a slew of oil and gas companies in Canada and abroad have been forced to shelve projects, slink away from raising money and chop payments to shareholders, TransCanada is doing just the opposite. It raised its annual dividend yesterday and reassured investors -- and its customers -- that the Keystone pipeline expansion, a project that will connect Alberta's oil sands to refineries in the United States, will not be delayed.
"The reaction to [the delaying suggestion in October], from our major shippers, was immediate," Hal Kvisle, Trans-Canada chief executive, said on the company's fourth-quarter conference call yesterday. "They all called us and said: 'What are you guys talking about? ... We don't want you to slow down.' "
" 'We have significant volumes that are coming on from projects that are currently starting up, and those volumes have to get to the Gulf Coast,' " the shippers told TransCanada.
To Mr. Kvisle, the message was clear: Oil companies want the line to be built as scheduled. The company expects it to be operating by mid-to-late 20102.
Further, TransCanada yesterday jacked up its annual dividend by 8¢, or 6%, to $1.52 in 2009, and unveiled a $6-billion capital-spending budget.
The company's fourth-quarter earnings rang in at $277-million, or 47¢ a share, down from $377-million (70¢) in the same quarter in 2007. This missed the expectations of analysts, who were looking for a profit of about 54¢ a share, according to Grant Hofer, an analyst at UBS Securities Inc., but the shortfall stemmed primarily from the company's corporate division, rather than its pipelines and power businesses.
"The big miss was actually on the corporate segment," Mr. Hofer said. "It was not operating.... It is certainly an earnings miss on paper, but not a huge concern."
The corporate group posted an unrealized hedging loss tied to interest rates of $39-million after-tax, or 7¢ per share. Further, the company raised money through equity financings in 2007, diluting its share count.
TransCanada has an 80% stake in the Keystone pipeline. However, its customers have the right to take equity stakes. This process is expected to wrap up in the first quarter, and should the partners exercise these options, TransCanada's ownership could drop to about 65%.
