Ottawa Buying Trans Mountain Pipeline Assets for $4.5 billion

Chad Hipolito  CANADIAN PRESS                       Attorney General David Eby looks on during a press conference at legislature in Victoria

"So our message today is simple: when we are faced with an exceptional situation that puts jobs at risk, that puts our worldwide reputation on the line, our government is prepared to take action", he said.

Canada first offered this month to indemnify the expansion project before announcing Tuesday's plan. It does not intend to own the project for long. The prime minister reiterated his intentions to get the line completed as he headed into a meeting with his cabinet Tuesday.

Kean is also CEO of Kinder Morgan, Inc., the Houston-based firm that owns 70 per cent of the Canadian firm.

"I'd say the deal is a slight positive as it helps reduce balance sheet leverage and removes this significant project execution overhang", St. Louis-based Edward Jones analyst Jen Rowland said in an email.

"It's a mess out there", said a Calgary industry source not authorized to speak publicly. May agreed that the proposed purchase would nationalize the existing pipeline and possibly cost taxpayers billions more if Ottawa moves to pay for the building of the twin line already started by Kinder Morgan.

But he added in a statement that the association is "deeply concerned" that the government felt it had to purchase the project "to assert federal jurisdiction" and allow it to be built.

Canada's oil sector has been stung in the past year as foreign energy companies retreated amid concerns about the environmental toll, high production costs and a risky regulatory regime.

"This is a great day for Canada, for our customers, for our employees", Kinder Morgan Canada CEO Steve Kean said on a morning conference call. The parent's stock rose almost 2 percent in USA trading.

"Our government believes that the commercial agreement we have reached with Kinder Morgan is the best way to protect thousands of good, well-paying jobs while delivering a solid return on investment for Canadians".

Kean did not say why he made a decision to sell rather than absorb the risk of further delays to Trans Mountain.

Horgan said federal ownership of the pipeline won't alter his government's actions, because the reference case to try and regulate the import of oil into the province is not specific to any pipeline.

"I think the transaction is a win-win". She added that there is bad news for Kinder Morgan because the company's "growth outlook is muted" without the expansion project.

The project has pitted oil-rich Alberta against coastal British Columbia, where concerns about fisheries, real estate values, tourism and ocean ecology are high.

"It must be built and it will be built", Finance Minister Bill Morneau said in Ottawa, as he and Natural Resources Minister Jim Carr unveiled the deal, which includes the expansion, related pipeline and terminal assets, and is expected to close in August.

Trans Mountain stirred an unusual public fight between neighboring provinces. But British Columbia has refused to yield.

The provincial government in oil-producing Alberta will create an emergency fund of as much as C$2 billion for the project, which would only be used in "unforeseen circumstances". The contribution will convert into equity in the pipeline.

Alberta Premier Rachel Notley cheered the news on Twitter.

A Canadian Crown corporation will be set up to own the pipeline and manage the TMEP, which is now forecast to cost C$7.4 billion ($5.9 billion) to triple capacity to 890,000 b/d.

But British Columbia Premier John Horgan said the province will push ahead with its court case to establish its right to restrict increased shipments of crude oil to its coastal waters.

The deal brings some certainty to an expansion project that has been on the rocks ever since B.C. went to court in hopes of blocking it, fearing the impact of a spill of diluted bitumen, the raw output from Alberta's oilsands.

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