Ottawa's Trans Mountain insurance raises hopes in the oilpatch, but plenty of challenges remain - Canadanewsmedia
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Ottawa's Trans Mountain insurance raises hopes in the oilpatch, but plenty of challenges remain



In the corridors of Alberta's legislature and around the oilpatch, federal Finance Minister Bill Morneau's commitment to backstop construction of the Trans Mountain pipeline project was greeted with optimism Wednesday.

For a project that's been devoid of much hope recently, this was no small feat.

But Ottawa's promise of financial indemnity, which is basically a big insurance policy if Kinder Morgan has to pay for delays caused by the B.C. government, is not a silver bullet for the challenges still confronting the project. Nor is it a guarantee Kinder Morgan will decide by month's end to break ground on the $7.4-billion pipeline that would ship heavy oil to the West Coast.

Not yet, anyway.

Finance Minister Bill Morneau's announcement received positive reviews in Alberta on Wednesday. (Patrick Doyle/Canadian Press)

Kinder Morgan Canada CEO Steve Kean was predictably mum on the subject during the company's annual meeting in Calgary on Wednesday, held a couple of hours after Morneau's announcement in Ottawa.​

Later, Kean said in a statement that he appreciated the acknowledgement of the uncertainty created by the B.C. government's court challenges, but cautioned that "while discussions are ongoing, we are not yet in alignment."

The company has threatened to abandon the project if it doesn't see a clear path forward by May 31.

So, many questions remain. What is the risk to taxpayers? Is this enough for Kinder Morgan? If it's not, will the Alberta government, or another company, step in to build the project?

A big backstop

The indemnity is not a direct subsidy or an ownership stake, but it is significant. Morneau wouldn't provide an estimate when pressed by journalists.

"I think this is exactly the way this commercial negotiation had to go," said Dennis McConaghy, a former senior executive with pipeline giant TransCanada.

"This was never about investing in the pipeline [for the government], it was about taking completion risk to a level that Kinder could bear."

He points to two court challenges against Kinder Morgan. One concerns whether the project falls under provincial or federal jurisdiction, while the other claims inadequate consultation of B.C. communities. With the indemnity, there is much less financial risk for the company.

"The biggest risk they cannot bear is a judicial decision that sets the clock back," he said.

Still, he expects there are a number of key negotiations to take place between Ottawa and Kinder Morgan to decide what exactly the backstop covers and the limit of how much the federal government will spend.

"If you have the will to agree on the key points, papering it can always be done as quickly as people need it to be done."

One risk gone, but others remain

Ottawa's commitment still doesn't protect Kinder Morgan against other potential delays and expenses, such as those caused by protesters.

That's why some experts still aren't convinced it presents a green light for the company.

"I'm not sure that this is a big enough announcement to get Kinder Morgan to be comfortable to move forward," said Richard Masson, the former CEO of the Alberta Petroleum Marketing Commission and executive fellow of the University of Calgary's School of Public Policy.

Opponents of the Kinder Morgan Trans Mountain pipeline extension protest at the company's property in Burnaby, B.C., last month. (Darryl Dyck/Canadian Press)

Certainty is still the No. 1 issue — and Kean hasn't let anything slip.

The statement by Kinder Morgan's chief executive reiterated the company's objectives: clarity on a path forward for the project, particularly the ability to build through B.C., and ensuring adequate protection for shareholders. 

Alberta Premier Rachel Notley said Wednesday that conversations between the provincial and federal government and Kinder Morgan are ongoing but insights into those talks have been sparing.

Potential new owner

If Kinder Morgan abandons the project, experts say there would be suitors to take it over — perhaps even the Alberta government.

The federal government acknowledged that fact by stating the indemnity would be extended to whoever takes charge.

Reading between the lines of Morneau's announcement, Masson can see the scenario where Alberta assumes a bigger role.

"That says to me that there's a high probability that somebody else is going to take over this project," he said.

"The only somebody else I think is practical is Alberta at some level. So it's quite possible that Alberta will end up on the hook for the delays associated with protests, like on-the-ground protesters, while the federal government would be on the hook for delays involved with court cases, and there may be some part of a bargain that's been struck."

If people are serious about getting this project done and in service in 2020, there's only one way to do that — make the deal with Kinder Morgan.– Dennis McConaghy, former senior executive with TransCanada

Masson said there's certainly a business case for Alberta to get involved, considering oil production in the province is rising and export pipelines are full. If even a few hundred thousand barrels a day can't find their way to market, it results in a discount on all the oil produced in the province.

"It costs a fortune in terms of jobs, in terms of taxes, and in terms of royalties," he said. "This project is vital for Alberta."

Notley, who raised the prospect of Alberta taking on the project several weeks ago, repeated Wednesday that the province is prepared to "do whatever is necessary" to get it built.

She also said it was pretty clear from Morneau's statement that Ottawa is prepared to extend the indemnity to "any buyer that came along, if that were the position we ended up in."

However, if Kinder Morgan sells the project, that would also take time and set the timeline back further. That's why McConaghy says the Alberta and federal governments are still hoping Kinder Morgan pushes forward with the pipeline.

"If people are serious about getting this project done and in service in 2020, there's only one way to do that — make the deal with Kinder Morgan," he said. 

"Kinder Morgan is not going to sell the existing assets that they have related to this project easily.

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OPEC threatens to turn on the spigots as oil price briefly hits highest point since 2014




The price of the North American oil benchmark briefly touched $72 US a barrel late Tuesday despite the OPEC oil cartel publicly mulling boosting supply as soon as next month.

The price of West Texas Intermediate, the North American oil benchmark commonly known as WTI, was changing hands as high as $72.83 at one point on Tuesday. Although it slumped slightly lower on Wednesday, that was the highest level since November 2014.

Supply concerns in Venezuela and Iran have been overhanging the market for months, driving prices higher. 

Then late Tuesday the oil-producing cartel known as OPEC suggested it may soon turn on the spigots a little, after curbing its supply for the better part of the past year to boost prices.

The notoriously fractious cartel has been uncharacteristically collaborative of late, as OPEC and Russia had agreed to curb their collective output by about 1.8 million barrels per day until the end of 2018.

Last month, the cartel reported 166 per cent compliance to its own cut targets — meaning it has been pumping even less oil than it had planned to.

But speaking to a Reuters reporter on Tuesday, one unnamed OPEC source said the group is considering lifting those limits sooner than anticipated, in part because of the rising price of oil. 

While WTI was briefly at $72 US, Canadian oil companies have also seen their prices rise. The blend of oil from Alberta's oilsands is known as Western Canada Select and it, too, has risen to a more than three-year high, almost touching $58 U.S. on Tuesday.

Higher oil prices are doubly helpful for Canadian producers, because they are priced in U.S. dollars, while Canadian companies book most of their expenses in Canadian dollars.

In Canadian terms, WTI is currently trading as high as $91 a barrel, Bank of Montreal economist Doug Porter noted on Tuesday.

"That's up 50 per cent  from just eight months ago."

In Canadian dollar terms, the price of WTI is now where it was, on average, during what Porter called the "go-go years for oil prices," between 2007 and 2014.

"The lack of a currency response means that Canadian consumers are feeling the full impact of higher oil prices," he said.

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Comcast prepares to top Disney's $50-billion offer for Fox




Comcast Corp confirmed for the first time on Wednesday it was preparing a higher, all-cash offer for the businesses that Twenty-First Century Fox has agreed to sell to Walt Disney Co.

While the U.S. cable operator said it was still considering its position, it said it was in advanced stages of readying an offer that would be “superior” and “at a premium” to Disney’s all stock offer.

“While no final decision has been made, at this point the work to finance the all-cash offer and make the key regulatory filings is well advanced,” Comcast said.

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Sources familiar with the deal told Reuters at the start of May that Comcast was preparing bridge financing for a cash offer for the Fox assets, but Wednesday’s statement is the first formal confirmation by the company it is ready to move.

The same sources said Comcast Chief Executive Brian Roberts will only proceed with a bid if a federal judge next month allows AT&T Inc’s planned $85 billion acquisition of Time Warner Inc to proceed.

Disney in December offered stock then worth $52.4 billion to buy Fox’s film, television and international businesses as it bids to beef up its offering against streaming rivals Netflix Inc and Inc.

Disney shares have fallen nearly 3.3 percent since, reducing the value of the offer to just over $50 billion.

“It all depends on the AT&T and Time Warner deal,” said Brian Weiser, analyst at Pivotal Research. “If that goes through it is highly possible there will more than one bid for Fox.”

Fox and Disney were not immediately available for comment.

Comcast, owner of NBC and Universal Pictures, has also made a 22 billion pound ($30 billion) offer to acquire the 61 percent stake in European pay-TV group Sky Plc that Fox does not already own. In doing so, it topped an earlier offer for the entirety of Sky by Fox.

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A regulatory filing in April showed Comcast offered to acquire most of Fox’s assets in an all-stock deal valued at $34.41 per share, or $64 billion last November – just before Disney’s offer was agreed.

After a sale, Fox’s remaining assets will include Fox News, Fox Business Network and sports cable networks.

Comcast shares were down 2 percent at $31.83 while Disney was down 0.7 percent at $103.26 in premarket trading.

“I think Fox, or its controlling shareholder and Board of Directors, has already expressed their preference – Disney, even though Comcast allegedly offered a higher consideration already,” said Jeffrey Logsdon, an analyst with JBL Advisors in California.

“Comcast does seem intent on winning this one (and) rivalry can frequently drive prices to un-economic levels.”

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Comcast v. Disney: a fight for Twenty-First Century Fox




PHILADELPHIA — Comcast may make an offer for Twenty-First Century Fox, potentially putting it in a head-to-head bidding war with Disney.

Comcast Corp. on Wednesday did not provide specific details on a bid, other than to say that it would be all cash and at a premium to the value of Disney’s current all-stock offer.

The Wall Street Journal and others reported earlier this month that Comcast had $60 billion to challenge Disney.

Disney’s $52.4 billion bid would go a long way in allowing it to better compete with technology companies in the entertainment business. Any tie-up would put in its stable more Marvel superheros, as well as the studios that produced the Avatar movies, “The Simpsons” and “Modern Family.” Disney would control Fox’s cable and international TV businesses as well.

Comcast said Wednesday that it’s in the “advanced stages” of preparing its bid. The Philadelphia company said the structure and terms of its offer would be at least as favourable as Disney’s.

A potential transaction with either Disney or Comcast would not include the Fox News Channel, Fox Business Network, Fox Broadcasting Company and certain other assets.

Comcast’s stock fell 2 per cent in premarket trading, while shares of the Walt Disney Co., based in Burbank, California, dipped slightly.

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