Construction costs have surged by some 70 per cent
Finance Minister Chrystia Freeland, facing a gigantic bill from the federal government’s COVID-19 rescue effort, said the Trans Mountain pipeline will receive no more federal funding, even though the Crown corporation that owns the pipeline revealed on Feb. 18 that construction costs have surged by some 70 per cent.
“There will be no additional public money invested in TMC,” or Trans Mountain Corp., the company the federal government created when it bought the pipeline in 2018, Freeland said at a press conference. “TMC will secure necessary funding to complete the project through third-party financing, either in the public debt markets or with financial institutions.”
Prime Minister Justin Trudeau’s government bought Trans Mountain from Kinder Morgan Inc. for $4.5 billion to keep the project alive. It would expand capacity to 800,000 barrels per day from 300,000, and give oil producers in Alberta a meaningful connection to Asian markets, which should result in higher prices. The oilpatch currently is at the mercy of conditions in the United States, and transportation bottlenecks tend to depress prices by creating a glut of Canadian bitumen.
“The Trans Mountain Expansion will ensure Canada receives fair market value for our resources,” said Freeland, adding that BMO Capital Markets and TD Securities, hired to offer Bay Street counsel, have both advised that the project remains commercially viable and that financing can be easily arranged.
“Our government acquired TMC and the Trans Mountain Expansion project in 2018 because we knew that it was a serious and necessary investment,” Freeland said. “This project is in the national interest and will make Canada and the Canadian economy more sovereign and more resilient.”
It might, but at an ever increasing cost. Trans Mountain chief executive Ian Anderson said in a statement that costs have increased to $21.4 billion from $12.6 billion at the time of the company’s previous update. Anderson cited delays caused by the pandemic and the November floods in the Hope, Coquihalla, and Fraser Valley areas as partially responsible for the cost overrun.
“The progress we have made over the past two years is remarkable when you consider the unforeseen challenges we have faced including the global pandemic, wildfires and flooding,” said Anderson. “At every step of the way, we have found solutions and responded. As a result, the project is advancing with significantly improved safety and environmental management, and with a deep commitment to ensure this project is being built the right way.”
Anderson said the target date for “mechanical completion” was the third quarter of 2023.
“Notwithstanding the cost increase and revised completion schedule, the business case supporting the project remains sound,” he said.
The oilpatch also remains supportive of the project. Suncor Energy Inc. chief executive Mark Little said the pipeline is crucial to the country and sector.
“While like everyone we are disappointed in the increased costs and schedule of the TransMountain project, we remain fully supportive of this world-class infrastructure project which is vital to Canada’s long-term economic success and energy security,” he said.
“The 2021 B.C. floods were a reminder of how critical this energy infrastructure is to both the security of energy supply to British Columbians and access for Canadian resources to global markets.”
Freeland’s decision to quickly shut the door on even the possibility that the federal government might come to Trans Mountain’s aid reflects the difficult fiscal situation in which she finds herself after two years of generously helping households and businesses survive the pandemic.
The federal budget deficit narrowed to $73.7 billion between April and November, compared with $232 billion in the same period a year earlier, but net debt remained elevated at $1.2 trillion, according to the Finance Department’s latest accounting.
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Netflix on Thursday reported that its subscriber growth slowed dramatically during the summer, a sign the huge gains from the video-streaming service’s crackdown on freeloading viewers is tapering off.
The 5.1 million subscribers that Netflix added during the July-September period represented a 42% decline from the total gained during the same time last year. Even so, the company’s revenue and profit rose at a faster pace than analysts had projected, according to FactSet Research.
Netflix ended September with 282.7 million worldwide subscribers — far more than any other streaming service.
The Los Gatos, California, company earned $2.36 billion, or $5.40 per share, a 41% increase from the same time last year. Revenue climbed 15% from a year ago to $9.82 billion. Netflix management predicted the company’s revenue will rise at the same 15% year-over-year pace during the October-December period, slightly than better than analysts have been expecting.
The strong financial performance in the past quarter coupled with the upbeat forecast eclipsed any worries about slowing subscriber growth. Netflix’s stock price surged nearly 4% in extended trading after the numbers came out, building upon a more than 40% increase in the company’s shares so far this year.
The past quarter’s subscriber gains were the lowest posted in any three-month period since the beginning of last year. That drop-off indicates Netflix is shifting to a new phase after reaping the benefits from a ban on the once-rampant practice of sharing account passwords that enabled an estimated 100 million people watch its popular service without paying for it.
The crackdown, triggered by a rare loss of subscribers coming out of the pandemic in 2022, helped Netflix add 57 million subscribers from June 2022 through this June — an average of more than 7 million per quarter, while many of its industry rivals have been struggling as households curbed their discretionary spending.
Netflix’s gains also were propelled by a low-priced version of its service that included commercials for the first time in its history. The company still is only getting a small fraction of its revenue from the 2-year-old advertising push, but Netflix is intensifying its focus on that segment of its business to help boost its profits.
In a letter to shareholder, Netflix reiterated previous cautionary notes about its expansion into advertising, though the low-priced option including commercials has become its fastest growing segment.
“We have much more work to do improving our offering for advertisers, which will be a priority over the next few years,” Netflix management wrote in the letter.
As part of its evolution, Netflix has been increasingly supplementing its lineup of scripted TV series and movies with live programming, such as a Labor Day spectacle featuring renowned glutton Joey Chestnut setting a world record for gorging on hot dogs in a showdown with his longtime nemesis Takeru Kobayashi.
Netflix will be trying to attract more viewer during the current quarter with a Nov. 15 fight pitting former heavyweight champion Mike Tyson against Jake Paul, a YouTube sensation turned boxer, and two National Football League games on Christmas Day.
The Canadian Press. All rights reserved.
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