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Kinder Morgan pipeline expansion investment untenable – CEO

19th April 2018

By: Henry Lazenby

Creamer Media Deputy Editor: North America

     

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VANCOUVER (miningweekly.com) – The CEO of Kinder Morgan Steven Kean has conceded that the C$7.4-billion twinning of the existing Kinder Morgan crude oil pipeline between Alberta and British Columbia “may be untenable for a private party to undertake”.

He made the comments during the company’s first-quarter conference call on Wednesday afternoon. This follows a suspension of non-essential spending on the Trans Mountain Expansion Project (TMEP) last week, with the company saying it will not put additional capital at risk.

“… there's no readthrough from this in terms of our willingness to invest in Canada. We have invested in Canada, British Columbia, as well as Alberta, and we expect to continue investing. But as we said then, it's become clear this particular investment may be untenable for a private party to undertake,” Kean said.

“The events of the last ten days have confirmed those views. We pointed out there are significant differences between governments; those differences are outside of our ability to resolve.”

The company is now continuing stakeholder discussions until a deadline of May 31. “We're looking for a way forward on this project.”

Kinder Morgan warned that if the project is terminated, the resulting impairments, foregone capitalised equity financing costs and potential wind down costs would have a significant effect on its operational results. Potential impairments would be recognised mainly in the period in which the decision to terminate is made, the company advised.

As of the end of the quarter, TMEP spend totalled about C$1.1-billion on a cumulative basis, of which about C$581-million was incurred by Kinder Morgan following its May 2017 initial public offering.

The company stated that “it is difficult to conceive of any scenario in which it would proceed with the project if an agreement is not reached by May 31. The focus in those consultations will be on two principles: clarity on the path forward, particularly with respect to the ability to construct through British Columbia; and, adequate protection of Kinder Morgan shareholders”.

"Demand for our pipelines continues to be strong with our Trans Mountain system once again oversubscribed each month during this past quarter," Kinder Morgan president Ian Anderson said.

Q1 RESULTS
Kinder Morgan reported first-quarter net income available to common stockholders of C$485-million, compared with C$401-million for the first quarter of 2017. Earnings in its terminals segment were slightly down year-on-year, owing to lower agricultural product and sulphur volumes at Vancouver wharves, which was driven by temporary third-party rail service disruptions.

Distributable cash flow (DCF) came to C$0.56 a common share, 4% higher over the first quarter of 2017, resulting in C$804-million of excess DCF above the company’s dividend. The board has approved a 60% increase in the quarterly dividend to C$0.20 a share, for an annualised dividend of C$0.80 a share. The company expects to use extra cash after the dividend payments to fully fund growth investments, and to further strengthen its balance sheet.

Volumes at the terminals business segment's Edmonton area terminals were down 3.2-million barrels, or 11% year-on-year, mainly owing to lower rail car loadings at its Edmonton rail terminal and Alberta crude terminal joint venture's rail facilities. Utilisation of its terminals remained high overall, driven by demand for product takeaway capabilities and optionality, according to Kinder Morgan Terminals president John Schlosser.

Edited by Creamer Media Reporter

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