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Vol. 25, No.14 Week of April 05, 2020
Providing coverage of Alaska and northern Canada's oil and gas industry

Keystone XL gets go-ahead

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Construction in full swing on giant pipeline; Alberta government takes equity stake

Gary Park

for Petroleum News

Underpinned by a major financial commitment from the Alberta government, TC Energy has stunned observers by announcing that the Keystone XL pipeline will emerge from 10-years of regulatory twists and turns and has already launched construction work towards a completion date in mid-2023.

The US$8 billion project is now scheduled to start delivering 830,000 barrels per day of oil sands bitumen over 1,210 miles from Alberta to Steele City, Nebraska, for onward delivery on an existing pipeline to U.S. Gulf Coast refineries, the largest concentration of heavy crude refineries in the world.

The Alberta government has agreed to invest US$1.1 billion in equity, which covers planned construction costs for the rest of 2020.

The remaining US$6.9 billion of capital investment is expected to cover costs in 2021 and 2022 and be funded through a combination of a credit facility of US$4.2 billion guaranteed by the Alberta government and a US$2.7 billion investment by TC Energy (formerly TransCanada).

C$6 billion already spent

TC Energy has already spent C$6 billion advancing the project, said Alberta Premier Jason Kenney.

He said his government’s decision to cover the spending impetus needed to complete Keystone XL is a “concrete vote of confidence in the future of the Canadian energy sector. We are in a crisis environment with a crash in oil prices, but the (COVID-19) pandemic will end and global demand will return.”

“When we reach that point, Alberta absolutely must have a major pipeline in commission,” Kenney said.

He said the Saudi Arabia-Russia price war in the middle of a health crisis “highlights now more than ever why we need energy independence” and an interconnected North American oil and gas market.

Without his government’s investment “we are certain that Keystone XL would not be built. In part because of the chaos in global energy markets, private sector capital is not available to finance the project. We can’t wait any longer,” Kenney said.

He said that without Keystone XL he was concerned about the “demoralization of our industry, the zero access to capital, the shut-ins and layoffs that are happening. (Those trends) could become fatal for our industry if we do not throw lifeline into the future so that when we get back to some kind of normalcy in markets, we can attract that investment.”

Buyback planned

TC Energy said it expects to buy Alberta’s US$1.1 billion stake once the pipeline is in service and plans to raise about US$1 billion by selling some of its shares.

TC Energy said it has 20-year shipping agreements with “strong, credit-worthy counterparties” for 575,000 bpd and estimates those deals will generate US$1.3 billion a year in earnings.

In addition, current contracts for 115,000 bpd from Hardisty in central Alberta to the Gulf Coast on the existing Keystone line will be transferred to the new facility under 20-year contracts.

It estimates construction work over the next three years will create thousands of construction jobs in Canada and the U.S. and eventually yield “tens of millions in property and income taxes” every year.

TC Energy Chief Executive Officer Russ Girling said his company was grateful for the “backing of landowners, customers, indigenous groups and numerous partners ... to help us secure project support and key regulatory approvals.”

He also thanked President Donald Trump (who reversed President Barack Obama’s decision to scuttle the venture) and Kenney “for their advocacy without which ... this project could not have advanced.”

In addition, Girling noted that TC Energy has an existing C$30 billion secured capital program.

To get ahead of the anticipated opposition, the company noted that six comprehensive reviews by the U.S. Department of State over the past decade concluded that the project “can be built and operated in an environmentally sustainable and responsible way.”

As well, Keystone XL will be safer and generate less greenhouse gas emissions than “current methods of transporting crude oil to market.”

On an earnings call in February, Girling noted that his company had acquired 100% of the needed pipeline right of way through Montana, South Dakota and Nebraska.



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